Economy slows down for 2nd consecutive quarter: BPS

Urip Hudiono, The Jakarta Post, Jakarta

Indonesia's economy expanded at a slower rate during this year's second quarter, as rising fuel prices triggered a domino effect of higher inflation and key interest rates, all of which dampened consumer spending, the Central Statistics Agency (BPS) asserted.

The BPS reported on Monday that the country's gross domestic product (GDP) had grown by 5.54 percent from April to June, from the same period last year.

Although the figure was still higher than last year's second quarter growth of 4.38 percent, it marks a continued economic deceleration for the second straight quarter, having grown by 6.19 percent in the year's first quarter and 6.67 percent in the final quarter of last year, respectively.

The country's economic engine had also appeared to shift into a lower gear during the second quarter, as the economy only managed to expand by 1.01 percent from the first quarter. The economy had accelerated by 2.68 percent in the first quarter, from last year's final quarter.

BPS deputy chief for statistical analysis, Slamet Sutomo, said the country's economic slowdown was primarily due to higher inflation and interest rates eating away at consumption and productivity.

Inflation in the country remained high at 7.84 percent as of July after the government increased domestic fuel prices in March.

"The global economy itself is slowing down from recently soaring oil prices and rising interest rates," he said.

Explaining further the second quarter GDP growth by sector, Slamet said all components in the country's economy experienced growth, except for the mining and agricultural sectors, which had respectively contracted by 2.87 and 0.96 percent.

Indonesia's transportation and communications sector recorded the highest growth, at 13.91 percent compared to the same period last year, or 3.67 percent compared to the first quarter.

"By quarter, an increased productivity in the mobile telecommunications business had mostly contributed to the sector's growth, while airlines and sea freight continued supporting the sector on a yearly basis," Slamet said.

Following the transportation and communications sector in the three top growing sectors, BPS reported that the services sector had expanded by 9.97 percent, while trade and tourism grew 9.48 percent.

Slamet said the country's economy has also continued its shifting from being driven mostly by consumption to more sustainable investments.

The agency reported that investment, as measured by fixed capital formation, increased by 13.21 percent, as compared to the growth in household consumption of 3.46 percent.

Government consumption also slumped to a 5.61 percent contraction.

Data from the Investment Coordinating Board (BKPM) shows that foreign direct investment increased 70 percent to US$3.35 billion in the first half of the year.

"With this trend, I'm sure this year's economic growth targets can be achieved, particularly in government consumption," he said, noting how the country's economy had already expanded by 5.86 percent during this year's first semester.

The government is expecting the economy to grow by a full-year rate of 6 percent this year. The country's economy grew 5.13 percent in 2004 with a GDP of some Rp 2.3 quadrillion (some US$242.4 billion).