Indonesia's Foreign Capital Inflows US$6.3B in 1Q 2019
Governor of Bank Indonesia Perry Warjiyo. Photo by TheInsiderStories.

JAKARTA (TheInsiderStories)Bank Indonesia estimated economic growth might reach 5.2 per cent in the second quarter this year, said Bank Indonesia’s governor Perry Warjiyo on Friday (13/07).

“We initially estimated 5.2 per cent, we still count the possibilities a little lower,” he added, as quoted by CNBC Indonesia.

Bank Indonesia estimate is higher than 5.06 GDP growth in the first quarter this year.

There are several factors that become the basis of the central bank estimation. One of them is a survey of business activities that grew 20.23 per cent in the second quarter of this year from 8.23 per cent in the same period last year.

Bank Indonesia also takes into account the US$1 billion trade surplus recorded in June which will boost economic growth in the second quarter.

Minister of Finance Sri Mulyani Indrawati earlier estimated GDP grows 5.2 per cent in the second quarter this year. This higher estimation than the first quarter economic growth is supported by the performance of several components.

The first component is higher household consumption in the second quarter of 2018 boosted by spending during Ramadan and Eid El-Fitr.

She sees household consumption growing at 5 per cent in the second quarter this year, higher than 4.95 per cent in the first quarter of this year.

Household consumption accounts for 56.80 per cent of GDP. A modest increase in the household consumption growth will bring great effect to overall economic growth.

In addition, she expected export to rise as a consequence of higher imports of raw materials and intermediary goods and capital goods import during January-May 2018 at US$57.960 billion and US$12.632, respectively.

Furthermore, the government spending also recorded higher in the second quarter of this year.

The ministries/agencies expenditure in the first semester of this year reached 35 per cent, slightly higher than 33 per cent in the first semester last year. The non-ministries/agencies expenditures related to the subsidies and debt interest payment reached 43.9 per cent of this target in the first semester this year, higher than 41 per cent in the same period last year.

Robust international trade is cited as the main contributor to the GDP growth in the first quarter this year, driven by higher oil price. On the expenditure side, gross fixed capital investment jumped 7.95 per cent, after a 4.77 per cent growth in the previous period.

However, persistent weakness in household consumption in Southeast Asia’s biggest economy held growth back. In Q1 2018, household consumption only rose to 4.95 per cent, from 4.93 per cent, or still below 5 per cent.

Meanwhile, government spending went up 2.73 per cent, driven by higher infrastructure and social spending. Indonesia’s exports reached US$15.58 billion, a 6.14 per cent year-on-year (yoy) increase, while the imports reached US$14.49 billion, a 9.07 per cent yoy increase.

Indonesian government targets 5.2 per cent to 5.6 per cent economic growth in 2019.

Indonesia has experienced strong economic growth and a steady poverty reduction over the past decade, but the end of the commodity boom, accompanied by slowing poverty reduction and rising inequality, has put pressure on the country’s overall economic development.

Indonesia’s average annual growth rate was 5.6 per cent in the period 2001-12, equivalent to a GDP per capita of about US$3,500. The national poverty rate was halved to 11.2 per cent in the period from 1999 to 2015, largely through sustained growth and job creation.

However, the decline in commodity prices and household demand slowed growth to 4.8 per cent in 2015, 5.1 per cent in 2016, and 5.07 per cent in 2017. The pace of poverty reduction also began to stagnate around this time, with a near zero decline in 2015, accompanied by rising inequality, as measured by the Gini coefficient.