Indonesian growth slowest since 2009 in second quarter

JAKARTA, Indonesia – Indonesian growth slipped to its slowest pace for almost 5 years in the second quarter, official data showed Tuesday, Aug. 5, highlighting the huge economic challenges facing the president-elect Joko “Jokowi” Widodo.

Southeast Asia’s top economy expanded 5.12% on-year in the 3 months to the end of June, the national statistics agency Badan Pusat Statistik (BPK) said, the slowest annual rate since the last quarter of 2009 and below economists’ forecasts of 5.3%.

A key contributor to the slowdown was a controversial ban on the export of some unprocessed minerals, which was introduced in January and hit the vital mining sector, BPK said.

The Indonesian economy has expanded at around 6% in recent years but it has been easing in the past 12 months due to slowing demand for commodity exports, and interest rate hikes in 2013 during emerging market turmoil.

The disappointing data underscores the tough task ahead for new leader Jokowi, the reform-minded governor of Jakarta who has pledged to revive the G20 economy when he takes office in October.
Jokowi has vowed to lift growth to 7% within 2 years, but many economists consider the target ambitious.

Growth for 2013 came in at 5.78%, the slowest pace of expansion for 4 years.

Gareth Leather from Capital Economics said Tuesday’s growth data showed the “scale of the challenge” facing Jokowi.

“Hopes for a recovery largely rest on the new government,” he said.

“Joko Widodo has certainly raised hopes that he could usher in a wave of reforms. However, it is far from clear if the new president will be able to live up to investors’ lofty expectations.”

Foreign companies operating in Indonesia have long complained of nationalistic policies, particularly in the resources sector, rampant corruption, and creaking infrastructure.

The second quarter growth was down from 5.2% expansion in the first quarter.

As well as the mining sector, growth in the manufacturing sector — such as the production of textiles and leather goods — also slowed, said BPK chief Suryamin.

However household consumption, a key driver of the economy, remained robust, growing 5.6% in the second quarter, the data showed.

The announcement comes a day after BPK released data showing Indonesia’s trade balance swung to a slim deficit in June as imports of food and clothes rose ahead of the Islamic holy month of Ramadan and Idul Fitri holiday. 

Inflation meanwhile eased to 4.53% on-year in July, compared to 6.70% in June, continuing a downward trend following a sharp rise last year caused by a hike in fuel prices. – Rappler.com