Tue, 05 May 2015
From:
By Chris BrummittRieka Rahadiana
Indonesia’s economy unexpectedly shrank for a second straight quarter as exports and government spending dropped, underscoring the challenge for President Joko Widodo as he seeks to reinvigorate growth. The rupiah fell.

Gross domestic product contracted 0.18 percent in the three months ended March 31 from the previous quarter, the statistics bureau said in Jakarta on Tuesday. That compares with the median estimate of a 0.25 percent expansion in a Bloomberg survey of 10 economists. The economy grew 4.71 percent from a year earlier, missing most estimates in a separate survey.

Widodo, known as Jokowi, took office in October pledging to increase infrastructure spending, boost investment and achieve 7 percent expansion by 2017 in Southeast Asia’s largest economy. Those efforts have been complicated by a slowdown in the country’s key commodity exports, while the consumer spending that has supported growth in the past is showing signs of softening on a weak rupiah and higher prices.

“With monetary policy hamstrung by rising inflation, the government will need to fast track infrastructure spending and get rupiah on the ground,” Glenn Maguire, a Singapore-based economist at Australia & New Zealand Banking Group Ltd., said after the data. “Government spending is leading the slowdown and must be activated efficiently.” Corporate Downgrades

The rupiah dropped 0.5 percent against the dollar to 13,044 as of 3:31 p.m. in Jakarta. It is the biggest decliner this year among 11 Asian currencies tracked by Bloomberg. The Jakarta Composite Index erased gains immediately after the GDP report.

Weaker-than-expected growth may lead to more corporate earnings downgrades in 2015, according to Arief Wana, director at PT Ashmore Asset Management Indonesia.

The quarterly contraction in the first three months was led by a 49 percent drop in government spending, while exports dropped 6 percent, the statistics office said. The agency cited slowing growth in China and Singapore, as well as weak crude oil prices for weaker overseas sales.

The government was confident growth will pick up in the second and third quarters in line with greater spending on infrastructure, Coordinating Minister for Economic Affairs Sofyan Djalil told reporters after the GDP data.

“We have to work hard,” he said. “The most important thing is that the government is given time.”

While two consecutive quarterly contractions can be considered a technical recession, in Indonesia’s case the first quarter shouldn’t be compared with the fourth quarter because of government spending patterns, said Suryamin, the head of the statistics office. Indonesia doesn’t seasonally adjust its quarter-on-quarter growth figures.

“The fourth quarter always contracts because it’s compared with the third quarter, when most government spending is disbursed,” Suryamin said. More Fragile

Finance Minister Bambang Brodjonegoro, who had predicted year-on-year growth in the first quarter might fall below 5 percent, said in an interview on May 3 that the government had to spend “more and quicker” to fight the slowdown.

The economy grew 5.02 percent in 2014, the slowest pace in five years. The government is targeting 2015 growth of between 5.4 percent and 5.7 percent. The median estimate in a Bloomberg survey is 5.3 percent.

The 2015 first-quarter figure was the slowest year-on-year growth since the third quarter of 2009, according to data compiled by Bloomberg. It may trigger downgrades in economists’ 2015 growth estimates, according to a research note by Santitarn Sathirathai, a Singapore-based economist for Credit Suisse, whose 5.1 percent forecast was “very much at risk”.

The government has a goal to spend 290 trillion rupiah ($22 billion) this year on infrastructure. It had spent 7 trillion rupiah as of April 27, the finance minister said.

“Indonesia is looking more ‘fragile’ with each passing day,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “It’s not just that the economy is slowing sharply, but also that President Widodo is struggling to assert his authority on Indonesian politics.”





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