Bloomberg News

Indonesia Withstands Europe Woes as Growth Accelerates: Economy

August 06, 2012

Indonesia Economic Growth Exceeds Estimates as Investments Surge

Consumer prices rose 4.56 percent last month from a year earlier, after climbing 4.53 percent in June, the statistics bureau said Aug. 1. Bank Indonesia forecasts inflation of 3.5 percent to 5.5 percent in 2012 and 2013. Photographer: Ed Wray/Bloomberg

Indonesia’s economic growth unexpectedly accelerated as rising investments countered declining exports, reducing pressure for monetary easing as the nation withstands Europe’s sovereign-debt crisis.

Gross domestic product rose 6.37 percent in the three months ended June 30 from a year earlier, the Central Bureau of Statistics said in Jakarta today. That compares with a revised 6.32 percent gain for the first quarter and the 6.1 percent median estimate of 24 economists surveyed by Bloomberg News.

Indonesia’s growth is the fastest among Group of 20 nations after China, even as the faltering global recovery hurt its currency and damped expansion in neighbors from Taiwan to Singapore. Investments accounted for 32.9 percent of GDP last quarter, the highest share since the Asian financial crisis, underscoring President Susilo Bambang Yudhoyono’s success in boosting confidence more than a decade after the nation sought an International Monetary Fund bailout.

“Investment is being driven by strong business confidence and low interest rates,” said Gareth Leather, an economist at Capital Economics Ltd. in London. “Given the poor outlook for global demand and the likelihood that the crisis in the euro zone will worsen again soon, we expect interest rates in Indonesia to remain at their current record low level for the rest of this year and next.”

The rupiah was little changed at 9,474 per dollar as of 1:34 p.m. in Jakarta, prices from local banks compiled by Bloomberg showed. It has dropped for six months, its longest losing streak since 1998, and is the worst performer this year among the 11 most traded Asian currencies tracked by Bloomberg.

Rate Decision

Bank Indonesia Governor Darmin Nasution and his board will keep the benchmark reference rate at 5.75 percent on Aug. 9, all but one of 26 economists surveyed by Bloomberg forecast. One predicted a quarter of a percentage point reduction. The central bank has avoided adding to a February interest-rate cut to the current record low.

Policy makers from China to South Korea and the Philippines lowered rates last month, a move Nasution may avoid amid the risk of price pressures as the world’s largest Muslim population observes the fasting period of Ramadan and the Eid al-Fitr festival that marks its end.

Consumer prices rose 4.56 percent last month from a year earlier, after climbing 4.53 percent in June, the statistics bureau said Aug. 1. Bank Indonesia forecasts inflation of 3.5 percent to 5.5 percent in 2012 and 2013.

Inflation is accelerating elsewhere in Asia even amid signs of easing growth momentum. Taiwan said today consumer prices rose at the fastest pace in more than three years in July. In Australia, a private report showed job notices declined for a fourth straight month in July.

European Disagreements

Disagreements within the 17-nation euro area are undermining the future of the union, said Italy’s Prime Minister Mario Monti as the stand-off on European Central Bank support for Italian and Spanish debt hardened. Investor confidence in the region probably fell further in August, the Limburg, Germany-based Sentix research institute is forecast to say today.

Yudhoyono has pledged to build more roads, ports and airport to achieve average growth of 6.6 percent by the end of 2014. In July, the central bank lowered its GDP forecast to about 6.1 percent to 6.5 percent this year, from a previous estimate of as much as 6.7 percent growth. The expansion may about 6.3 percent to 6.7 percent in 2013, it said.

Indonesia’s growth last quarter is the fastest in the G-20 after China’s 7.6 percent. Many countries in the group haven’t released data for the same period. Saudi Arabia’s economy expanded 5.94 percent in the first quarter from a year earlier.

Rising Investment

While investment in Southeast Asia’s largest economy is increasing and has bolstered imports, easing exports led to a June trade deficit of $1.32 billion that data showed is the widest in at least five years. Exports fell 16.4 percent in June from a year earlier, while imports rose 10.7 percent.

Second-quarter growth was mainly supported by investment, government spending and household consumption, while exports slowed due to declining commodity prices as demand eased on Europe’s debt crisis, according to the statistics bureau.

Investment climbed 24 percent to 76.9 trillion rupiah ($8.1 billion) in the three months ended June 30 from a year earlier, M. Chatib Basri, chairman of the Investment Coordinating Board, said July 25. The country is targeting foreign and local investment of about 500 trillion rupiah in 2014, from as much as 290 trillion rupiah in 2012, he said in a Bloomberg interview.

Low interest rates have spurred loan growth and helped commercial banks to post higher net profits. PT Bank Central Asia, Indonesia’s biggest financial services company by market value, reported a 10.5 percent gain in first-half net income to 5.3 trillion rupiah as lending increased 42 percent.

“Domestic demand should stay resilient,” said Eugene Leow, a Singapore-based economist at DBS Group Holdings Ltd. “Credit growth has been well-supported. Other high frequency indicators such as car sales have also remained robust, supported by rising wealth and wage growth. In terms of investment, there have been no signs of slowing thus far.”

To contact the reporters on this story: Novrida Manurung in Jakarta at nmanurung@bloomberg.net; Hidayat Setiaji in Jakarta at hsetiaji@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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