Indonesia’s growth slows to 5-year low, outlook mixed this year

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Indonesia’s pace of economic growth continued its decline last year amid waning export demand and slowing investments, while anticipation of greater government spending on infrastructure offers some analysts a brighter outlook this year.

Gross domestic product grew 5.02% last year, the Central Statistics Agency (BPS) announced. That was the smallest gain since 2009, when the economy grew 4.6%. In 2013, Indonesia’s economy grew 5.58%.

In 2014, BPS recorded Indonesia’s GDP at $836.73 billion.

Exports of goods and services — which make up 24% of the economy — saw the slowest growth last year at 1 percent, down from 5.3% in 2013.

Investments and household spending also slightly lagged last year with growth at 5.1% and 4.1%, respectively. Household spending made up 56% of the economy, while investments contributed 33%.

David Sumual, chief economist at Bank Central Asia, said the slowdown was largely expected, adding that sluggish pace is likely to spill over to this year’s first half as investments and exports eke out growth.

“We will probably still see [a slowdown] through the first quarter of the year, with a chance of acceleration in the second quarter. Investors are still in a wait-and-see mode this month, because political sentiments are still relatively [uncertain],” he said.

BCA’s David added that the global decline in oil and commodity prices, as well as lagging demand from the country’s major trading partners, will continue to dampen demand this year.

Earlier this week, BPS reported that softer export growth — especially with key trading partners China and Japan — had also dragged the country’s trade balance to a $1.8 billion deficit last year.

The slow pace of exports is expected to remain a factor, David said, meaning government spending will have to be a key driver of growth.

Economists at Barclays echoed the sentiment, highlighting a relatively bullish outlook on the government’s plan to speed  up infrastructure development this year.

“Looking ahead, a structural transformation story is developing well into 2015 as President Joko Widodo has pledged to achieve a growth target of 5.7% in 2015,” said Barclays’ Wai Ho Leong and Angela Hsieh in a note on Thursday. “This will be accomplished … by undertaking infrastructure projects to attract investment.”

Barclays sees 5.3% growth this year: “The stimulus from infrastructure projects will kick in later this year; initially, growth will be hampered by increasing capital equipment imports.”

(Jakarta Post)

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