Indonesian GDP Growth Disappoints, Adding to Currency Woes

(Bloomberg) -- Indonesia’s economy expanded at a slower pace last quarter than economists had forecast, a setback for the government after eight interest rate cuts in the past two years. The currency fell to the lowest since 2015.

Key Points

  • Gross domestic product rose 5.06 percent in the first quarter from a year earlier, the statistics bureau said in Jakarta on Monday
  • Median estimate of 23 economists surveyed by Bloomberg was for growth of 5.19 percent
  • Compared with the previous quarter, GDP fell 0.42 percent; economists estimated a decline of 0.3 percent 

Indonesia’s central bank had been cutting rates since the beginning of 2016 in a bid to spur growth in Southeast Asia’s biggest economy. While consumer spending has been sluggish, growth was supported last year by a pick up in exports.

Indonesian GDP Growth Disappoints, Adding to Currency Woes

Financial markets have been roiled in recent weeks as higher U.S. interest rates prompted outflows from emerging markets. That’s closed the door on further easing by Bank Indonesia and raised the prospect of the first rate hike since November 2014 as policy makers look to protect a currency.

The rupiah fell as much as 0.5 percent to 14,003 against the dollar on Monday, trading above 14,000 for the first time since December 2015.

Sluggish Demand

Finance Minister Sri Mulyani Indrawati said last week that while the weakening currency presents risks for economic growth, the government would look to sustain economic momentum by extending assistance to low income groups. The government is forecasting growth of 5.4 percent this year.

Consumer demand continued to disappoint, with household spending rising 4.95 percent in the first quarter from a year earlier, little changed from the fourth quarter. Growth in government spending slowed to 2.73 percent from 3.81 percent in the fourth quarter.

“It continues the story of the previous four quarters in which consumer spending was below expectations, and means there are downside risks to the government achieving it’s growth target of 5.4 percent for 2018,” said David Sumual, the chief economist at PT Bank Central Asia.

The data complicates the central bank’s job, but Sumual expects policy makers will follow through with a rate increase later this year. Bank Indonesia is set to announce a rate decision on May 17.

“The numbers from the consumer side of things are still below expectations and that’s why the central bank might think hard about their next step,” he said.

Rising oil prices and stronger global growth helped to support growth last quarter, the statistics office said.

©2018 Bloomberg L.P.