JAKARTA (TheInsiderStories) - Indonesia’s gross domestic product (GDP) in the first quarter came in lower-than-expected, highlight a need for the government to boost government spending and investment in the following quarters.
The country’s GDP recorded growth of 4.92 percent in the first quarter 2016, contracted by 0.34 percent from the fourth quarter 2015 (quarter to quarter) , but grew higher compared to 4.73 percent in the firs quarter last year (year-on-year), the Central Bureau of Statistic (BPS) announced last Wednesday.
Bank Indonesia said the lower GDP growth in the first quarter was attributable to the limited growth of government consumption and investment. The lower government consumption was due to seasonal factor, which usually lower in the first quarter and starts picking up in the second and third quarter before picking up in the last quarter.
On the other hand, private sector investors tended to opt ‘wait-and-see’ attitude in the quarter, which led to low realization of investment activities, despite government was striving to boost infrastructure projects in the quarter. Household consumption though still grew relatively strong, supported by relatively stable prices.
On the external side, the export performance of some commodities show signs of recovery, although it is till contracted.
“Going forward, Bank Indonesia expects economic growth to improve in second quarter, supported by the government fiscal stimulus related with the development of infrastructure projects. Meanwhile, household consumption is expected to improve in line with relatively stable inflation rate,” BI said in a statement.
The launch of government economic packages would hopefully boost Indonesia’s competitiveness, hence improving investment climate and ultimately increasing Indonesia’s exports. In addition, the easing monetary policy should help strengthen the growth momentum.
“Bank Indonesia will continue to monitor domestic and external developments and at the same time strengthen coordination with the government to stimulate economic growth, while at the same time maintain stability of the economy. By maintaining stable macro economic stability, Indonesia’s economic growth will grow higher in a sustainable way,” BI said.
UOB Group Economist, Ms. Ho Woei Chen, noted that Indonesia’s GDP growth came in weaker than market’s and our forecast (Bloomberg: +5.07 percent; UOB: +5.1 percent) at 4.92 percent y/y in 1Q16 largely due to a slowdown in government spending and investment while exports remained in contraction.
“This was also below Bank Indonesia’s (BI) expectation of 5.1-5.2 percent growth rate. Asian economies (that have already released 1Q16 GDP data) continued to show lackluster growth performance in 1Q16, including Singapore, Taiwan and South Korea. The weak growth in the region is a reflection of the pace of recovery in global demand. Indonesia, while less export-dependent, has been hit by weak commodities which account for around 40 percent of its exports,” she said.
During the first quarter, government spending growth slowed sharply to 2.93 percent y/y from 7.31 percent in 4Q15 but was comparable to the same period in 2015. Fixed investment moderated to 5.57 percent y/y in 1Q16 from 6.90 percent, as investments in machinery and equipment contracted amid global demand weakness even though investments in buildings and structures continued to register robust growth.
She added exports of goods and services contracted for the 6th consecutive quarters at -3.88% y/y but this was an improvement from -6.44 percent in 4Q15. Household consumption which accounts for 56 percent of GDP maintained stable growth of 4.94 percent y/y in 1Q16 compared to 4.92 percent in the preceding quarter.
“Despite the data disappointment, we are maintaining our full-year growth forecast at 5.0% (2015: 4.8%) on the expectation that government expenditure and infrastructure spending will pick up pace in the second half of the year. The revision of the budget for 2016 will come into focus and there remain concerns that growth could be compromised as a result of revenue shortfall,” Ho Woei Chen said.