Economy grew 2.6 percent during first quarter

JAKARTA (JP): The Indonesian economy grew at 2.6 percent during the first quarter of this year, as against a drop of 0.72 percent in the fourth quarter of last year, mainly due to a rebound in the agriculture sector, according to the latest report issued by the Central Bureau of Statistics (BPS).

The statistics agency, however, said that annualized GDP growth rate during the January to March period dropped to 4.01 percent against 4.77 percent in the fourth quarter of last year.

BPS chief Soedarti Surbakti said first quarter GDP climbed on the back of increases in all sectors, except in the electricity, gas and potable water sector which fell by 2.79 percent, and the trade, hotel and restaurant sector which slipped by 0.02 percent.

The BPS reported the biggest surge in the agricultural sector, which grew at 15.39 percent against a drop of 12.55 percent in the previous quarter

The agency said that the high growth in the agricultural sector was mainly due to seasonal factors.

Next came the transportation and communications sector which grew at 0.87 percent compared to the previous quarter last year.

The manufacturing sector recorded growth of 0.61 percent over the previous quarter's growth due in part to 1.93 percent growth in the oil and gas sector and 0.45 percent growth in the non-oil and gas sector.

According to the BPS, year-on-year GDP growth came in lower in the first quarter as investment spending fell 0.14 percent and government spending 0.44 percent compared to the previous quarter.

In the same period, Soedarti said, exports rose by 4.85 percent coupled with a surge in household spending of 1.13 percent.

"From the government side, we expect spending to further drop, but investment might pick up and spur production," she said at a press meeting.

The government has cut spending to cope with higher costs arising mainly from overseas debt servicing and bond interest payments.

Spending on these two items has soared because of the sharp plunge of the rupiah and the subsequent increase in Bank Indonesia promissory note interest rates.

The rupiah has long overshot its budget assumption rate of 7,800 to the dollar, and has been trading at above 10,000 since March.

Consequently, the government must allocate more funds to repay its foreign debt, while higher Bank Indonesia promissory note interest rates mean that interest payments on floating rate bonds are costlier.

Fears that the state budget deficit could widen to 6 percent of GDP, or over Rp 80 trillion (about US$7.2 billion), has forced the government to trim its already tight budget.

Under the proposed state budget revision, the government hopes to save Rp 8.9 trillion in development spending.

But Soedarti said that renewed investment and continued strong exports might keep the economy growing as expected.

According to her, this year's GDP growth might still make it to the BPS's estimated level of around 4 percent, even without support from government spending.

"I wouldn't call it (the prediction) too optimistic. The first quarter's 2.6 percent is promising, and we have three more quarters to go," she said.

According to her, GDP growth normally weakens in the second quarter, but climbs to its peak during the third or fourth quarters.

Bank Indonesia forecasts economic growth to end lower than the 4.5 percent to 5.5 percent projection it made earlier this year.

For its part, the government is expecting growth of 3.5 percent, far below its initial target of 5 percent.

But BPS deputy chief Kusmadi Saleh said that improved political stability that encouraged investment could reverse the negative outlook.

"Hopes are still high that it (GDP) can reach last year's level of 4.77 percent," Kusmadi said.

He said if the second quarter showed positive signals, GDP might hit the BPS's estimated best outcome of up to 6 percent.

However, he warned, continued pressure from inflation would impede economic growth.

"If prices go up, it'll lower household consumption, thereby reducing supply which is the outcome of the production process," he explained. (bkm)