Indonesia GDP

Indonesia

Indonesia: GDP moderates again in Q2, country waits for president-elect Widodo to lead revival

August 5, 2014

In the second quarter, GDP grew 5.1% over the same quarter last year. The expansion was just below the 5.2% increase observed in the first quarter and marked the weakest growth rate since Q3 2009. The result undershot market expectations of a 5.3% rise. The relatively weak result in Q2 was driven by a steep drop in government spending, a moderation in investment and continued sluggishness in exports. The result puts pressure on president-elect Joko Widodo, who takes office in October, to implement his reform agenda swiftly and jump-start the economy.

On the domestic side of the economy, total consumption increased 4.8% (Q1: +5.4% year-on-year). Private consumption growth in Q2 was steady at the 5.6% tallied in Q1, although government consumption plummeted from an increase of 3.5% in Q1 to a 0.8% contraction in Q2. Cutbacks in government spending have been introduced to compensate for ballooning fuel subsidies. Meanwhile, fixed investment growth moderated from 5.1% to 4.5% amid political uncertainty in the run up to the presidential election in July.

The external sector continued to suffer the effects of a mineral export ban that the government introduced in January in an attempt to promote the development of a domestic processing industry. Exports contracted 1.0% in Q2, which followed the 0.4% drop registered in Q1. Imports suffered even more, registering a 5.0% contraction in Q2 (Q1: -0.7% yoy). As a result, the external sector’s net contribution to overall growth increased from 0.2 percentage points in the first quarter to 2.0 percentage points in the second quarter.

The Central Bank expects the economy to expand between 5.1% and 5.5% in 2014. FocusEconomics Consensus Forecast panelists expect the economy to expand 5.3% in 2014, which is unchanged from last month’s forecast. For 2015, the panel sees economic growth at 5.7%.


Author:, Economist

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Indonesia GDP Q2 2014

Note: Year-on-year changes of GDP in %.
Source: Statistics Indonesia (BPS) and FocusEconomics Consensus Forecast.


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