Fri, 07 Aug 2015
The Indonesian economy has logged another quarter of growth below 5 per cent, underscoring the difficulty facing a new president who had pledged to boost economic activity and jobs in South-East Asia's largest economy.

The figure from Indonesia's official statistics agency shows gross domestic product (GDP) growth at 4.67 per cent for the second quarter, its lowest levels since 2009.

"What the number certainly tells us is that the Indonesian economy is struggling to find a base. And while there is confidence it will find a base, the pick-up won't be as strong," ANZ chief ASEAN economist Glenn Maguire said.

Mr Maguire said the country has become over-reliant on government measures to provide a boost to the economy, yet spending on public works at the end of June was just 10 per cent of the budget allocation.

"The big ticket item that needs to be seen to recover is government investment," he said.

According to Standard Chartered senior economist Eric Sugandi, while monthly growth numbers had shown a small bump, there was concern that it represented spending by regional governments for administrative costs rather than public works.

"What makes me worry is the government spending. As of July capital spending in only 11 per cent of the allocation," he said.

Indonesia, once the darling of the region, has seen its growth rate dragged back by weak commodity prices and a government that has so far been unable to push through major infrastructure projects.

Indonesia needs to upgrade its transport, energy and maritime facilities to provide a competitive environment for its own goods and encourage investment.

"I don't think things will move quite as quickly as hoped or expected by the government," said PricewaterhouseCoopers' (PwC) partner Andrew Parker, adding that "there is the age-old problem of projects simply not being ready to go" because the right framework is not yet in place.

Protectionism at odds with competing neighbours

A report by the professional services firm has found the government's ambitious infrastructure plans are likely to fall short of requirements needed to boost GDP growth.

However, PwC noted that opportunities still existed over the next few years to change the investment and regulatory climate.

Both the ANZ and Standard Chartered said that the latest GDP figure represents something close to the bottom of the nation's slowdown, but that any pick-up is likely to be slight and short of the government's target.

"Until you see that investment flow becoming firmer and wider then economic growth recovery will be shallow," Mr Maguire said.

The Indonesian government is estimating growth as high as 5.2 per cent this year as fiscal spending picks up, less though than the initial target of 5.7 per cent.

The nation's central bank is constrained by a weakening of the rupiah, the possibility of a further hit from the expected interest rate rise in the United States, and an inflation rate of more than 7 per cent.

It also faces a softening in consumer spending, one of the main drivers of growth in the economy, seen most glaringly in a double-digit turndown in car sales for the year so far.

Investors have also raised concerns about a government that has introduced a raft of protectionist measures that are creating uncertainty about the government's intentions.

According to Mr Maguire, Indonesia is still attracting its fair share of foreign direct investment, but Vietnam and Thailand are exploiting a more open-door policy at a time their Indonesian neighbour is on a different path.





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