Indonesia’s Economic Shrank at 0.52% in 1Q 2019
Chief of Indonesian Statistics Suhariyanto.

JAKARTA (TheInsiderStories)Indonesia’s economic growth shrank to 0.52 percent in the three months to March (q-to-q), following a contraction of 1.69 percent in Q4 (2018) and compared to a market consensus of contraction of 0.40 percent, said an official report on Monday (05/06).

Head of Indonesian Statistics Suhariyanto, said this is the weakest growth rate since the 1Q y-o-y, as private consumption and investment continued to rise more gently, while government spending continued to increase and net exports contributed negatively to GDP.

“This marks the second consecutive quarterly contraction, although the economic grew to 5.07 percent in the first quarter (1Q) of 2019, from 5.06 in the same period of the previous year,” he said in official statement.

Suhariyanto reports that the Indonesian economy is based on the GDP magnitude on the basis of current prices in 1Q 2019 reaching Rp3,782 trillion and on the basis of constant 2010 prices reaching Rp2,625 trillion.

The decline of Indonesia’s economic growth simultaneously with the estimate of Institute of Chartered Accountants in England and Wales (ICAEW), that expected Indonesia’s GDP to decline to 5.0 percent in 2019, from 5.2 percent in 2018, due to a slowdown in net export growth, according to the its latest report of Economic Insight: South-East Asia on Monday (05/06).

According to ICAEW analysis, the decline was due to reducing of export growth as trade protection became tighter and demand Chinese imports weakened. Also, it was driven by weak global economic activity at the end of 2018 and declining exports, where only Malaysia recorded by positive growth.

“Looking ahead, we expect the risks to the region to be primarily on the downside. A sharper slowdown in Chinese economic growth triggered by worsening confidence, or a renewed escalation in US-China trade tensions, both affect global trade and growth across the region,” said ICAEW Economic Advisor & Oxford Economics Lead Asia’s economist Sian Fenner.

In Indonesia, he stated, domestic demand remained the critical engine of growth in this quarter as expected, although the data was mixed. GDP growth rose in fourth quarter of 2018 to 5.2 percent year-on-year, unchanged from the previous quarter and bringing full-year growth to 5.2 percent, up slightly from 5.1 percent in 2017.

Meanwhile, consumer spending picked-up slightly, growing 5.1 percent year-on-year, helped by mild inflation and a healthy labor market.

He viewed in the future modestly higher inflation and lower planned increases in minimum wages compared to last year are likely to dampen real household income growth and consumption growth, offsetting the impact of pre-election giveaways in the 2018 Budget.

The potential for a worsening report on the financial position of state-owned enterprises (SOEs), uncertainty in the profitability of several infrastructure projects, and a more significant current account deficit are challenges the economic prospects, according to ICAEW analyst.

On the other side, BI will maintain a strict monetary policy stance. The Rupiah against the US dollar fell 10 percent in 1Q of 2018 and the end of October 2018, due to pressure from many foreign exchange markets.

BI is trying to reduce the width current account deficit and support the strengthening of the Rupiah and limit Indonesia’s external imbalances, with a 175bp increase from the interest rate increase since May.

With expectations that the Federal Reserves will continue to tighten United States monetary policy at the end of this year, foreign ownership of Indonesian bonds (almost 40 percent) could cause the Rupiah to become vulnerable to changes in investor sentiment.

BI’ policy level is likely to rise throughout the year, said economist, albeit at a slower pace than in 2018. Overall, BI is expected to raise interest rates once this year by 25 basis points in Q3.

Furthermore, Suhariyanto said, in terms of production, the highest growth was achieved by the Corporate Services Business Field of 10.36 percent, while in terms of expenditure was achieved by the Components of Consumption Expenditures of Non-Profit Institutions that Serve Households which grew 16.93 percent.

Suhariyanto detailed that Indonesia’s spatial economic structure in 1Q was dominated by provincial groups on Java and Sumatra. The provincial group on Java Island contributed the most to Indonesia’s GDP, which amounted to 59.03 percent, followed by Sumatra Island at 21.36 percent, Kalimantan Island at 8.26 percent, and Sulawesi Island at 6.14 percent. While the provinces of Bali and East Nusa Tenggara were 3.02 percent.

“The lowest contribution is given by provincial groups on Maluku Island and Papua,” he explained.

In addition, he revealed, Indonesia’s Business Confidence dropped to 102.1 in the three months to March 2019 from 104.71 in the previous period. This was the weakest reading since the March quarter 2016, when the index seen at 99.46.

Meanwhile, the number of workforce in February 2019 was 136.18 million, up 2.24 million compared to February 2018. In line with the increase in the workforce, the Labor Force Participation Rate also increased by 0.12 percentage points. The working population is 129.36 million people, an increase of 2.29 million people from February 2018.

Written by Daniel Deha, Email: daniel@theinsiderstories.com