Indonesia 2014 GDP growth seen slowest in 5 years, but set to pick up

[JAKARTA] Indonesia probably posted its weakest economic performance in five years in 2014 as political uncertainties slowed investments and exports faltered on sliding commodity prices.

South-east Asia's largest economy is finding it harder to fire up its engines of growth with the ending of the commodities boom and as a rise in domestic fuel prices hits spending.

The median forecast of 17 analysts in a Reuters poll was for full-year gross domestic product (GDP) to expand 5.07 per cent, slowing from 5.78 per cent in 2013.

In the fourth quarter, the economy likely grew 4.95 per cent from a year earlier, versus 5.01 per cent previously.

Analysts said consumption, the largest component of GDP, would have weakened in the final quarter after the government raised fuel prices in November. A follow-up rate hike by the central bank to fight inflationary pressures further choked liquidity in the financial system, hurting loan growth. "The moderation in growth has been well flagged with declining credit growth, volatile fuel prices, political uncertainty, the fiscal transition, and collapse in commodity prices," said Daniel Wilson, an analyst from ANZ Bank in Singapore, in a research note on Monday.

Both exports and imports contracted in 2014, data from the statistics bureau showed on Monday.

Wilson noted the possibility of higher nominal GDP as the statistics bureau had said it would update the base year for GDP calculations from 2000 to 2010 starting with its next report.

All analysts surveyed see conditions improving this year, betting that reforms under President Joko Widodo will raise the country's investment profile in the longer term.

Bank of America Merrill Lynch's analyst Clara Tan expects a return of investor appetite through 2015.

Keeping a lid on the large current account deficit and addressing long-standing complaints about red tape will be pivotal to boosting investor confidence and private investment. There may also be scope for government spending to contribute to growth this year, given the windfall from cheap oil prices.

Standard Chartered's Eric Sugandi said an upside of 0.3 percentage points from his estimate of 5.2 per cent is possible"if the government can boost infrastructure development".

Indonesia's central bank has forecast growth will rebound to 5.4-5.8 per cent this year.

But Singapore's DBS Bank warned that volatility in the rupiah would remain a concern. "Weakness in the rupiah has weighed on investment growth in the past two years and further pressure on the unit may continue to be a drag," said economist Gundy Cahyadi.


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