(Aug 5): Indonesia’s finance minister signaled plans for more stimulus after the economy expanded faster than expected in the second quarter, with household spending and investment cushioning against a challenging global backdrop.
Gross domestic product rose 5.29% from a year earlier, Indonesia’s statistics agency said in a briefing on Wednesday. That compares to the 5.14% median estimate in a Bloomberg survey and the 5.61% posted in the first quarter.
Southeast Asia’s economy is proving resilient despite the prolonged Iran war, which has spurred energy prices and weighed on commodity exports. It’s also been beset by broader investor concerns about Indonesia President Prabowo Subianto’s economic policies and risks to the country’s emerging-markets status and credit scores from MSCI Inc and ratings companies.
“Achieving 5.29% growth is quite good under such circumstances,” Finance Minister Purbaya Yudhi Sadewa said in a briefing on Wednesday, noting that he remains confident GDP growth will further pick up speed and meet the government’s 6% target for 2026 — a level not reached since 2012.
The rupiah and the 10-year government bonds held earlier gains while stocks pared their advance to close 0.5% up at the highest level in over two months.
The President has already ordered the creation of a stimulus plan to mitigate the impact of an El Nino dry spell, the finance chief added, with Indonesia set to accelerate growth by “maximizing all engines of growth, including increasing money into the economy.”
The government, however, may have limited space to ramp up spending after earmarking some US$1.5 billion (RM6.14 billion) in economic incentives for the second half, not least because it aims to keep the budget deficit below the legal limit of 3% of GDP. The central bank’s recent string of rate hikes may also tighten financial conditions.
Before Purbaya commented, Bank of America Corp economist Kai Wei Ang estimated GDP growth could slow to 5.2% in the second half of the year as fiscal support likely wanes. The overall budget for Prabowo’s flagship free-meals programme has already been cut, he pointed out.
The country’s spending is already under close scrutiny that sent the rupiah down 5% last quarter, making it by far the worst performer in the region. The sudden resignation of the widely respected Perry Warjiyo as central bank governor late last month has rekindled volatility in the market, while the war in the Middle East could complicate the government’s plans.
“We would be mindful of the need to moderate fiscal spending to meet deficit targets and risk of trade underperformance if global refined fuel costs stay high,” said Radhika Rao, a senior economist at DBS Bank Ltd in Singapore. She expects Bank Indonesia to keep its key rate unchanged this month.
Household consumption, which accounts for more than half of Indonesia’s economy, remained the main growth driver despite expanding at a slower pace of 5.06% last quarter.
Gross fixed capital formation accelerated, increasing 6.87% from a year earlier, led by vehicles and other equipment. Government spending rose nearly 16% with the expansion of the free meals programme and the payment of civil servants’ bonuses.
On the industry side, manufacturing, agriculture, trade, construction and mining were the biggest contributors to GDP. All sectors expanded except for mining, according to Edy Mahmud, Indonesia’s Deputy for National Accounts and Statistical Analysis.
In a positive for a country with a large, young population, the jobless rate eased slightly to 4.65% in May from 4.68% in February. The total labour force rose to 155.1 million. Full-time workers accounted for 66.8% of the workforce in May, up slightly from February, though below the 68% recorded in November.
The poverty rate was at 8.07% in March, down from 8.47% a year ago.
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