Dip in consumption, commodity prices hit Indonesia Q2 growth

[JAKARTA] Indonesia's economy grew a slower-than-expected 5.01 per cent in the second quarter as a dip in household consumption and a slowdown in key commodity prices hit the resource-rich country, data released Monday showed.

The year-on-year expansion was unchanged from the first quarter but below the government target of 5.2 per cent growth for 2017.

"We have to admit that the 5.01 per cent growth is below our expectation, but I'd say it's still quite good considering the global economic conditions and the decreasing commodity prices," Suhariyanto, the head of Indonesia's Central Statistics Bureau, said.

President Joko Widodo came to power in 2014 on a pledge to boost economic expansion to seven per cent but his government has struggled to lift growth rates in Southeast Asia's largest economy, which is rich in resources but has suffered from a slump in commodity prices.

Household consumption, which accounts for more than half of Indonesian GDP, was the main driver of growth, expanding 4.95 per cent per cent year-on-year but down from the 5.07 per cent growth seen in the second quarter last year.

Growth in trade dipped, due to a slowdown in domestic goods production and the supply of imported goods, Suhariyanto said.

Capital Economics described the result as another disappointing quarter for Indonesia.

"Looking ahead, we see little prospects of a sustained recovery," Gareth Leather, senior Asia economist at the consultancy, said.

Authorities have been scrambling to boost growth, with the central bank slashing interest rates six times last year and Mr Widodo announcing a series of economic stimulus packages.

Although Mr Widodo's pledge of raising growth rates to seven per cent a year looks unlikely, Indonesia's economic fundamentals have improved in recent years.

Standard and Poor's (S&P) upgraded Indonesia's sovereign bond rating to investment grade in May, bringing it in line with the two other major agencies, Moody's Investors Service and Fitch Ratings.

The World Bank said in June Indonesia needed to press ahead with structural reforms to lessen its commodity dependence.

Improving the tax-GDP ratio and reforming sectors protected from foreign investment should be priorities, the global lender said.

AFP