Growth slows in second quarter: BPS

Zakki P. Hakim, The Jakarta Post/Jakarta

The country's economy grew at a slower rate in the second quarter, compared to the first quarter of the year as consumer spending weakened due to rising inflation.

The Central Statistics Agency (BPS) said that the economic growth in the April-June period of this year was 4.32 percent compared to the same period last year. The agency said that year-on-year growth in the first quarter was 5 percent. (The agency on Monday revised the first quarter growth from the earlier reported 4.66 percent.)

Economists have previously predicted that the economy would grow at around 4.7 percent in the second quarter.

The lower than expected growth rate means the government must work harder to achieve its full-year economic growth target of 4.8 percent particularly amid the current trend of surging oil prices, which economists said would eventually affect economic growth both at home and abroad.

BPS did not provide an explanation on the slower growth rate, but rising inflationary pressures during the past three months due to weakening of the rupiah (the local unit has declined by nearly 10 percent against the dollar) reduced consumer spending as purchasing power weakened. Inflation hit a 15-month high of 7.2 percent in July, higher than the government's annual rate target of 6.5 percent, due to soaring prices of food and other basic commodities.

Domestic consumption has been the main engine of economic growth during the past few years, accounting more than 68 percent of gross domestic product (GDP).

Growth in household spending slowed to 5.26 percent in the second quarter from 5.71 percent in the first quarter. Government spending in infrastructure, meanwhile, expanded by 6.08 percent, but less than half the 12.75 percent gain was in the previous quarter.

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.

BPS said that GDP grew by 0.86 percent in the second quarter from the first quarter, while it expanded by 4.66 percent in the first half of the year compared to the same period of last year.