Indonesia's Q1 GDP growth seen at 5.05%

JAKARTA: Indonesia's aim to get full-year economic growth back above 5% in 2016 should get support from first-quarter data to be announced on Wednesday, though it is also expected to signal a slow recovery.

Growth in resource-rich Indonesia weakened for a fifth consecutive year in 2015, to 4.8%. Poor commodity prices, contracting exports, weak investment and waning consumption produced the lowest growth rate since 2009.

But a cabinet reshuffle in August and the government's focus on lifting growth generated some momentum and the economy started to rebound in late 2015, albeit at a moderate pace.

Analysts in a Reuters poll think the slow upward trend probably continued in the first quarter. The median forecast is for annual growth of 5.05%, fractionally above 5.04% in the final quarter of last year.

Some analysts indicated cautious optimism based on better disbursement of government spending and improvement in some economic indicators. In March, motorcycle sales were higher than a year earlier, for the first time in six months.

Also in March, Nikkei/Markit's survey of manufacturing activity ended a 17-month stretch of deterioration, showing a modest expansion as new orders from domestic buyers increased.

Its April's survey also showed expansion.

MIXED SIGNALS

But some other indicators signal that recovery is fragile.

Value-added tax receipts have fallen, which the government said showed people's reluctance to spend, and February loan growth was the weakest since 2009.

Many retailers say business has yet to improve.

By March, sales for the middle and low-end of the market "kind of improved, but the middle up was severely hurt," Indonesian Retailers Association vice-chairman Tutum Rahanta said.

Several brokerages said the overall result of corporate earnings was largely disappointing in the first quarter.

Despite encouraging data released by the country's investment board, some analysts were also sceptical that investment inflows are strengthening.

"What continued to catch our attention is the weak growth of capital goods imports," said Gundy Cahyadi, an economist with DBS in Singapore, adding that investment growth probably slowed in the first quarter after coming in at a three-year high in October-December.

"As long as investment growth remains sluggish, another 5% GDP growth this year cannot be taken for granted," Cahyadi said.

The median estimate in the Reuters poll for full-year growth was 5.1%, below the government's target of 5.3% and the central bank's projection of 5.2%-5.6%. - Reuters