JAKARTA: Indonesia on Monday is expected to announce slightly higher economic growth in the second quarter, as weak consumption is crimping the country’s ability to get the pace well above 5%.
In every quarter since the start of 2014, growth has hovered around 5%, which many analysts say is not enough to escape the so-called middle income trap.
President Joko Widodo has promised to accelerate growth to 7% during his five-year term, which ends in 2019.
The median forecast in a Reuters poll of 19 analysts is for second quarter growth of 5.10%, identical with the central bank’s expectation. That’s a touch stronger than January-March’s pace of 5.01%.
Private consumption accounts for more than half of Indonesia’s gross domestic product (GDP), so weakness in it will directly affect the growth rate.
In the second quarter, car and motorbike sales slumped on a yearly basis and Bank Indonesia’s retail sales survey showed moderation in growth, indicating weak demand.
Yet, value-added tax revenue - an indicator of business transactions - was up by 14% in 2017’s first half, from a year earlier, after contracting in the same period last year.
Consumer confidence reached a record high in May, according to a central bank survey.
Financial reports by consumer goods and retail companies were also mixed, with department store Ramayana showing a slowdown in sales but home equipment seller Ace Hardware and retailer Mitra Adiperkasa booking increases.
Direct investment both by foreign and domestic investors continued to grow in the second quarter, data from the investment board showed. Exports also recovered on the back of better commodity prices, except for an unexpected drop in June, which officials attributed to holidays celebrating the end of the Ramadan fasting month.
“Investment has gone up but people’s purchasing power seems to have gone down,” Thomas Lembong, chairman of the investment board, said on Wednesday, adding that low inflation should have supported retail sales.
He called the situation ”a mystery”.
BID TO STIMULATE DEMAND
July’s annual inflation rate was 3.87%, in the middle of BI’s target range and historically relatively low for Indonesia.
The central bank has tried to stimulate demand using a host of measures, including slashing the benchmark policy rate and easing banks’ lending rules.
The government has increased spending allocation for this year, including for infrastructure, which should also lift growth.
In the Reuters poll, the most optimistic was Rahul Bajoria of Barclays, who forecast 5.5% growth in the second quarter, based on improvements in trade activity, government spending and capital imports - an indicator of investment.
Ten analysts gave forecasts for full-year 2017 growth, and the median of those was 5.15%. The government’s growth target for this year is 5.2%, the same as BI’s outlook. In 2016, growth was 5.02%.
Gundy Cahyadi, an economist with DBS, said he expects a “gradual recovery” in GDP growth momentum in the near term.
“Even then, GDP growth is set to remain below 5.6%, its 10-year average up until 2016, until at least mid-2019,” he said. - Reuters