The economy of Indonesia registered a decline in growth rate during the first quarter of 2015 owing to poor government spending and weaker exports, according to Bank Indonesia, even as the central bank remains upbeat of economic recovery in the next quarter.
Economic expansion during the quarter was recorded at 4.71% compared to 5.14% year-over-year, and the figure was also below the previous quarter’s growth of 5.02%.
“Such economic growth slowdown in this period is in line with various indicators monitored by Bank Indonesia in the last few months,” said the central bank in a statement.
It traced the contraction in the first quarter of 2015 primarily to a deceleration in non-profit institution consumption, government consumption, and investment in the construction sector.
“The weakening government consumption occurs owing to poor expenditures, particularly pertaining to the recently ratified 2015 Amended State Budget and unrealized expenditures of ten new ministries and institutions,” said the release.
Meanwhile, declining consumption growth of non-profit institutions is especially due to lower expenditures in this period than those in the same period last year with general election expenditures.
In construction investment, the drop resulted from the wait-and-see behavior of the private sector and pending government projects.
Export performance also decreased as demand slid and prices of the world’s commodities went down. Meantime, imports also nosedived along with weakening domestic demand.
Looking ahead, Bank Indonesia forecasts the economy to start strengthening during the second quarter, stimulated by an increase in government spending from that period onward.
Additionally, investment growth is estimated to increase during the second quarter of 2015 through the next quarters along with increasing government capital expenditures in infrastructure projects.
However, Bank Indonesia also foresees risks ahead, saying “economic growth in 2015 may go to the lower limit of 5.4%-5.8%.” This could occur, it said, if infrastructure projects of the government will not go as fast or as extensively as planned and improvement in consumption and export activity falls below expectations.
Investment and development company Van der Schaar Investments B.V., on its website Indonesia Investments, said the slippage in Indonesia’s GDP growth in Q1 was worse than initially expected. It quoted Suryamin, head of Statistics Indonesia, as stating that the country’s economic growth slowed to a five-year low on the back of weak exports and lower crude oil prices.
The 4.71 percent growth pace in Q1 means that Indonesia’s slowing economic growth trend that started from 2011 continued into 2015 despite high hopes that Indonesian President Joko Widodo could manage to reverse this trend, it added.
The government set a 5.8% GDP growth target year-over-year in the 2015 state budget but it is now highly unlikely that such a growth target can be achieved, it continued.
The World Bank estimates that Indonesia’s economic growth will be about 5.2% in 2015, while the International Monetary Fund puts it at 5.3%.
Photo: Joe Coyle
