First quarter growth higher but unimpressive: Economists

Rendi A. Witular, Jakarta

The economy grew at a higher rate than expected in the first quarter of this year, but remained unimpressive compared to other countries in the region, as growth was primarily driven by domestic consumption.

The Central Statistics Agency (BPS) reported on Monday that the economy, as measured by gross domestic product (GDP), expanded by 4.46 percent in the first quarter, compared to the same period last year.

The agency said household consumption and government consumption increased by 5.71 percent and 12.75 percent, respectively.

"Domestic consumption has again been the primary driver, as it accounted for 69.14 percent of the GDP in the first quarter, up from 67.25 percent in the same period of 2003," said BPS deputy chief La Ode Syafiuddin.

Stronger consumer loans from banks amid a declining interest rate environment and low inflation, plus general elections spending, have boosted domestic consumption.

La Ode explained that if the situation remained conducive, with less fluctuation in the rupiah and stable oil prices, economic growth this year could fare better than last year and would probably meet the government's target of 4.8 percent.

"The impact of the recent fall in the rupiah and surging oil prices will be reflected in second and third quarter growths," he said.

Senior economist of Mandiri Securities Khalil Rowter said the country's economic growth was unimpressive, as it remained largely dependent on domestic consumption, rather than on export and investment.

"The growth is higher than our forecast of 4.4 percent. But as in previous years, it is nothing special. Export and private investment need to be boosted in order to achieve a strong and sustainable growth," said Khalil, projecting that the GDP this year would reach 4.6 percent.

Indonesia, the largest economy in Southeast Asia, has been lagging behind its neighbors in terms of the pace of economic recovery, mainly due to weak investment, a key factor for the country to accelerate growth to more than 6 percent and help resolve its chronic unemployment problem.

In the first quarter, investment increased 4.24 percent, but from a very low base a year ago. Meanwhile, exports grew only 0.85 percent in the first quarter.

In the case of Thailand, robust private consumption over the past two years was being overtaken by strong private investment and exports, while in Malaysia, big government spending was being overtaken by stronger private investment fueled by the growth of small and medium enterprises and expanding export.

Economist Chatib Basri said robust domestic spending during the first quarter would likely surge higher in the second quarter, because the majority of the general elections expenditures had yet to be calculated.

"We will see higher growth in the second and third quarters on higher spending during and ahead of the general elections. I estimate that the GDP will reach 4.7 percent for 2004," he said.

The statistics agency said almost all economic sectors enjoyed higher growth in the first quarter, except the mining sector, which contracted by 2.72 percent.

The agriculture sector grew by 1.53 percent, manufacturing by 5.46 percent, utilities 2.16 percent, construction 7.31 percent, trade, hotels and restaurants 6.13 percent, transportation and communications 13.81 percent, finance 4.85 percent and services 4.37 percent.

The agency has applied a new calculating standard for this year's GDP, the United Nations latest standard, which bases GDP calculation on the 2000 constant price instead of the 1993 price.