Indonesia’s economy beats forecasts on consumer, gov’t spending

Indonesia’s economic growth held steady in the first quarter as improving consumption and government spending offset a slowdown in exports and investment in South East Asia’s largest economy.

Gross domestic product (GDP) expanded by 5.03 percent in the January to March quarter from a year earlier, data from Statistics Indonesia showed on Friday. That was quicker than the 4.95 percent median forecast in a Reuters news agency poll and compared with 5.01 percent growth in the fourth quarter.

Indonesia’s post-pandemic recovery has been helped by a commodities-led export boom, though analysts expect economic momentum to cool as commodity prices ease and monetary policy tightening around the world hits global demand.

Bank Indonesia’s (BI) monetary tightening, including interest rate hikes totalling 225 basis points between August and January to fight inflation, could also hit domestic demand.

The central bank has paused tightening since and some economists expect it to keep interest rates unchanged for the rest of the year, although others argued concerns over growth may push BI to ease later this year.

In January to March, growth in household consumption, which accounts for more than half of GDP, picked up slightly to 4.54 percent, compared with 4.48 percent in the previous three months, while government spending rose 4 percent against a contraction previously.

Meanwhile, export growth softened to 11.68 percent from nearly 15 percent in the fourth quarter. The statistics bureau said exports of Indonesia’s main products such as coal, palm oil and metals had remained strong.

Investment also slowed.

“We think the economy is set to struggle over the coming quarters,” Capital Economics’s analyst Gareth Leather said in a note on the data, underlining weakening exports and the effect of BI’s tightening on demand.

The central bank estimates Indonesia’s economic growth will be at the upper end of a 4.5 to 5.3 percent range, down from 5.3 percent in 2022.

Transportation, warehousing and hospitality sectors recorded the fastest year-on-year growth in the first quarter.

Source: Al Jazeera/Reuters