MARKET DEVELOPMENT
Indonesia’s Slowing GDP a Wakeup Call for President Widodo
Indonesia’s Slowing GDP a Wakeup Call for President Widodo
05/05/2014 (Bloomberg) - For the second time in a year, Indonesia’s growth probably fell short of 5 percent last quarter.
While that may seem like a boom by rich-world standards, for this emerging economy it’s disappointing. Weaker growth in Southeast Asia’s biggest economy shows the challenges facing President Joko Widodo.
Gross domestic product grew 4.92 percent last quarter from a year earlier, according to the median forecast from a Bloomberg survey of 16 economists. That would be the same rate as in the third quarter of 2014, which was the lowest since the same quarter of 2009.
“It’s a wakeup call for a leader who has set all sorts of aspirational targets,” said Hak Bin Chua, an economist at Bank of America Merrill Lynch in Singapore.
The economy grew 5.01 percent in the final three months of 2014. Finance Minister Bambang Brodjonegoro said April 30 growth might be “slightly‘‘ below 5 percent. The data will be released on Tuesday.
Here are four reasons for the slowdown:
1. Spending less
Consumer spending, which has been a driver of economic expansion in the country of 250 million people, is showing signs of softening due to a weaker rupiah, high interest rates and inflation on the back of increased fuel prices.
Consumer companies such as noodle maker PT Indofood Sukses Makmur, cigarette manufacturer PT Gudang Garam and auto seller PT Astra International reported lower earnings for the first quarter, leading to a sell-off in Indonesian stocks last week on investor concerns about the economic outlook.
‘‘Private consumption used to be the main factor for pushing up growth, but it is not quite as robust as before,’’ said Oversea-Chinese Banking Corp. economist Wellian Wiranto.
Domestic car sales are expected to fall between 5 percent and 10 percent this year from 1.2 million in 2014, Prijono Sugiarto, president director of PT Astra International, said April 20.
2. Exports Struggling
Exports of Indonesia’s commodities are falling due to slowing demand in China, the country’s main export market. Indonesia exports palm oil, rubber, crude petroleum, coal, tin and other resources.
The government is trying to expand manufacturing but that industry is yet to pick up the slack. The weak rupiah hasn’t helped exporters because the country relies on imported materials, which have risen in price, to produce much of its exports.
Exports in March fell 9.75 from a year earlier, with oil and gas dropping 25 percent, according to figures released by the statistics bureau.
‘‘There is a positive and strong correlation between low commodity prices and the slowdown of our economic growth,’’ Brodjonegoro said in an interview Sunday in Baku, the capital of Azerbaijan. ‘‘It means it’s not exclusively the issue of the current government.’’
3. Government Yet to Start Spending
Widodo, known as Jokowi, has pledged to use billions of rupiah from the savings made by scrapping fuel subsidies on building infrastructure like roads, bridges and ports. That should lead to stronger economic growth, but the program has barely begun.
The country has in the past struggled to spend funds earmarked for development. Difficulties in acquiring land mean projects can get delayed for years.
‘‘It’s very important for the government at this point in to get the fiscal side working, and make sure all these ground-breaking projects are done,’’ said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore.
The government has spent rupiah 7 trillion ($541 million) on infrastructure out of a goal of 290 trillion, Brodjonegoro said April 29.
4. Investment Holding Up, for Now
Jokowi is courting foreign investors needed to pay for his infrastructure program, pledging to speed up the ease of doing business.
Data released April 30 showed total investment rose 16.9 percent to a quarterly record of 124.6 trillion rupiah in the first three months of 2015 from a year earlier, helped by the weaker rupiah.
But in dollar terms, foreign direct investment fell more than 4 percent from a year earlier last quarter, a smaller decline than the previous three months, according to Bloomberg calculations based on previously reported data.
‘‘Investors are likely to wait for actual proof now,’’ said OCBC’S Wiranto, referring to the predicted sub-5 percent growth. There will be ‘‘no more benefit of the doubt like before, probably.’’
While that may seem like a boom by rich-world standards, for this emerging economy it’s disappointing. Weaker growth in Southeast Asia’s biggest economy shows the challenges facing President Joko Widodo.
Gross domestic product grew 4.92 percent last quarter from a year earlier, according to the median forecast from a Bloomberg survey of 16 economists. That would be the same rate as in the third quarter of 2014, which was the lowest since the same quarter of 2009.
“It’s a wakeup call for a leader who has set all sorts of aspirational targets,” said Hak Bin Chua, an economist at Bank of America Merrill Lynch in Singapore.
The economy grew 5.01 percent in the final three months of 2014. Finance Minister Bambang Brodjonegoro said April 30 growth might be “slightly‘‘ below 5 percent. The data will be released on Tuesday.
Here are four reasons for the slowdown:
1. Spending less
Consumer spending, which has been a driver of economic expansion in the country of 250 million people, is showing signs of softening due to a weaker rupiah, high interest rates and inflation on the back of increased fuel prices.
Consumer companies such as noodle maker PT Indofood Sukses Makmur, cigarette manufacturer PT Gudang Garam and auto seller PT Astra International reported lower earnings for the first quarter, leading to a sell-off in Indonesian stocks last week on investor concerns about the economic outlook.
‘‘Private consumption used to be the main factor for pushing up growth, but it is not quite as robust as before,’’ said Oversea-Chinese Banking Corp. economist Wellian Wiranto.
Domestic car sales are expected to fall between 5 percent and 10 percent this year from 1.2 million in 2014, Prijono Sugiarto, president director of PT Astra International, said April 20.
2. Exports Struggling
Exports of Indonesia’s commodities are falling due to slowing demand in China, the country’s main export market. Indonesia exports palm oil, rubber, crude petroleum, coal, tin and other resources.
The government is trying to expand manufacturing but that industry is yet to pick up the slack. The weak rupiah hasn’t helped exporters because the country relies on imported materials, which have risen in price, to produce much of its exports.
Exports in March fell 9.75 from a year earlier, with oil and gas dropping 25 percent, according to figures released by the statistics bureau.
‘‘There is a positive and strong correlation between low commodity prices and the slowdown of our economic growth,’’ Brodjonegoro said in an interview Sunday in Baku, the capital of Azerbaijan. ‘‘It means it’s not exclusively the issue of the current government.’’
3. Government Yet to Start Spending
Widodo, known as Jokowi, has pledged to use billions of rupiah from the savings made by scrapping fuel subsidies on building infrastructure like roads, bridges and ports. That should lead to stronger economic growth, but the program has barely begun.
The country has in the past struggled to spend funds earmarked for development. Difficulties in acquiring land mean projects can get delayed for years.
‘‘It’s very important for the government at this point in to get the fiscal side working, and make sure all these ground-breaking projects are done,’’ said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore.
The government has spent rupiah 7 trillion ($541 million) on infrastructure out of a goal of 290 trillion, Brodjonegoro said April 29.
4. Investment Holding Up, for Now
Jokowi is courting foreign investors needed to pay for his infrastructure program, pledging to speed up the ease of doing business.
Data released April 30 showed total investment rose 16.9 percent to a quarterly record of 124.6 trillion rupiah in the first three months of 2015 from a year earlier, helped by the weaker rupiah.
But in dollar terms, foreign direct investment fell more than 4 percent from a year earlier last quarter, a smaller decline than the previous three months, according to Bloomberg calculations based on previously reported data.
‘‘Investors are likely to wait for actual proof now,’’ said OCBC’S Wiranto, referring to the predicted sub-5 percent growth. There will be ‘‘no more benefit of the doubt like before, probably.’’