Indonesia GDP growth seen higher in second quarter, but 2018 target looks out of reach – Reuters poll

uk.reuters.com

 

JAKARTA (Reuters) – Indonesia’s economy likely grew slightly more quickly in the second quarter than first, helped by seasonal spending for Muslim holidays, but not enough to help the government achieve its full-year target of 5.4 percent.

The median forecast from 17 economists in a Reuters poll was for an annual growth rate in April-June of 5.16 percent, compared with the 5.06 percent expansion reported for the first quarter.

Southeast Asia’s largest economy has been struggling to get growth above 5 percent, where it has lingered the last couple of years. President Joko Widodo, who is seeking re-election next year, had pledged to lift growth to 7 percent to get the economy out of the middle income trap.

This year, Indonesia is caught in the crosshairs of an emerging market sell-off, spurred by higher U.S. interest rates and the U.S.-China trade war. Between mid-May and the end of June, the central bank raised interest rates by 100 basis points to defend the fragile rupiah IDR=.

To reduce demand for foreign exchange and contain Indonesia’s current account deficit, the government is also reviewing its infrastructure projects to try to cut rising import bills.

All of these moves, welcomed by many economists for helping stability, dampen the growth outlook.

“Amid global uncertainty, the 2Q GDP figure might be Indonesia’s last chance this year to impress investors,” said Satria Sambijantoro, Bahana Sekuritas economist in Jakarta, who forecasts April-June growth at 5.2 percent.

HOLIDAY SPENDING

Officials recently said this year’s growth rate might not top 5.2 percent. Finance Minister Sri Mulyani Indrawati on Tuesday said the government’s forecast for the second quarter was 5.17-5.20 percent.

The latest quarter covered the Muslim fasting month and holidays marking its conclusion. During that period, “corporate activities were limited, but household (activities) increased,” she said, noting such spending accounts for a “good portion” of gross domestic product.

Company earnings reports show sales of some retailers rose in the first half, but those of consumer goods producers weakened.

“Investment and exports grew well. Consumption was getting better, but government spending had not significantly improved,” said Damhuri Nasution, chief economist at Danareksa Research Institute.

The National Development Planning Agency said economic growth in coming quarters could get a boost from Indonesia playing host to the Asian Games in August-September and the World Bank-IMF annual meetings in October.

Analysts in the Reuters poll see Indonesia’s full-year growth rate at 5.20 percent, compared with 2017’s 5.07 percent.

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