Indonesia's Q2 Domestic Growth Slows To 4%, but Still Leads Region

Monday, 10 August 2009

The Jakarta Globe

The domestic economy grew at a slower pace in the second quarter of this year, in line with expectations and largely due to falling exports and declining private consumption, although by global standards the country remained among the world’s best-performing economies.

Data released on Monday by the Central Statistics Agency (BPS) showed that the economy grew by a robust 4 percent pace in the second quarter from the same period a year ago.

Overall quarterly domestic growth finished at the upper end of Bank Indonesia’s estimate, made last week, of between 3.7 percent and 4 percent.

The rate of growth, however, was slower than the 4.4 percent expansion recorded in the first quarter of 2009.

Although the quarterly decline was in line with expectations, gross domestic product still grew to Rp 1,365.5 trillion ($136 billion) in the second quarter.

“[Indonesia was] among the top three countries that grew positively” in Asia after China and India, BPS director Rusman Heriawan told a press conference on Monday.

China grew by 7.9 percent in the second quarter. India has yet to release its second-quarter growth figures, but analysts say the country’s economy is on track to grow between 5.5 percent and 6 percent this year.

“Demand has been pretty broad-based, with resilience in domestic demand helping to balance the decline in exports, enabling Indonesia to hold up better than many neighboring economies,” said David Cohen, an economist at Action Economics in Singapore.

“Now with global export demand improving, people are optimistic that Indonesia can sustain growth going forward.”

The country’s exports shrank by 15.7 percent in the second quarter from the same period a year ago, but rose sharply from the first quarter of 2009, when overseas shipments shrank by 26 percent year on year.

Stronger export performance this quarter was partly due to better prices for the country’s key commodities — primarily oil and gas, crude palm oil and mineral resources.

Prices for all of these materials have steadily climbed from their lows at the end of 2008.

Household consumption grew at a slower pace in the second quarter of the year, rising at an annualized 4.8 percent rate, compared with 6 percent in the first quarter.

BPS said that the transport and telecommunications sectors grew 17.5 percent from the same period a year earlier, while public utilities, including water and electricity, grew by 15.4 percent.

However, the government’s Rp 73.3 trillion fiscal stimulus package — the disbursement of which is currently behind schedule — has not yet had a measurable impact on the economy, Rusman said.

“The stimulus package will not have an immediate effect on domestic growth — it might take a few quarters to show visible results,” he said. “It could even take years.”

Meanwhile, the manufacturing sector, which in the past has contributed significantly to domestic economic growth, barely grew in the second quarter, edging up a mere 1.5 percent from the same period in 2008.

Geographically, the domestic economy remained largely driven by economic activity on the island of Java. The Jakarta region and East and West Java acted as the main engines for growth in the second quarter, with a combined 45.7 percent contribution to GDP expansion.

Darmin Nasution, the new senior deputy governor at the central bank, said he was upbeat about growth prospects for the remainder of the year.

“We believe the economy will grow more in the third and fourth quarters — better than our previous expectations and more optimistic than the macro assumptions made on this year’s budget,” he said.

“The current indicators, such as increased demand for commodities and rising commodity prices, are improving. Rising prices of oil, crude palm oil and other energy-related products will improve Indonesia’s export performance.”

Sofyan Wanandi, chairman of the Indonesian Employers Association (Apindo), said he was optimistic that the Indonesian economy would remain on track to grow by 4 percent in 2009, provided that the government’s fiscal stimulus package “was disbursed in a timely manner.”

He said, however, that most businesses were still waiting for stronger signs of economic recovery before aggressively investing in expansion. Most factories around the country are still operating at about 80 percent of total capacity, Sofyan said. “They are unlikely to expand further in the near term,” he said.