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.
Author: Carl Kelly, Economist