BLOOMBERG/Strongest Growth in a Year for Indonesia Expected as Recovery Momentum Builds
By Aloysius Unditu & Michael Munoz
Indonesia’s economy probably expanded at the fastest pace in more than a year last quarter as record-low interest rates boosted consumer spending and exports and investment recovered.
Gross domestic product grew 5.79 percent in the three months to March 31 from a year earlier, compared with 5.4 percent in the previous quarter, according to the median forecast of 20 economists in a Bloomberg News survey. That would be the fastest pace since September 2008. Indonesia’s statistics bureau is due to release the data on May 10.
Bank Indonesia has left its benchmark interest rate at 6.5 percent since August and urged lenders to expand credit as President Susilo Bambang Yudhoyono focuses on boosting growth.
Retail sales surged in the first quarter, supported by fiscal stimulus and high consumer confidence, Sydney-based Moody’s economist Nikhilesh Bhattacharyya said in a note on Thursday.
“Business investment picked up, supported by easing credit standards, surging capital inflows and high capacity utilization. Exports grew rapidly on the back of strong demand from emerging markets.”
The Jakarta Composite Index has increased 11 percent this year and the rupiah gained 13 percent in the past 12 months to become the best performer in Asia, as foreign funds sought to take advantage of Indonesia’s strengthening economy and political stability.
Indonesia’s exports, which account for 29 percent of gross domestic product, surged 54 percent to $35.4 billion in the first quarter from $23.03 billion a year earlier, according to data from the statistics bureau.
“We have seen investment and exports start to pick up in the first quarter,” said Destry Damayanti, an economist at PT Mandiri Sekuritas. “More investment in big projects like in the airports and seaports should help boost the economy.”
Domestic and foreign investment totaled Rp 42.1 trillion ($4.6 billion) in the first quarter, according to data from the Board of Capital Investment. Foreign direct investment accounted for Rp 35.4 trillion.
Economic growth has also been supported by rising confidence, buoyed by the most stable political climate since the ouster of the dictator, Suharto, in 1998. A central bank index measuring consumer sentiment rose to 107.4 in March from 98.6 a year earlier, bolstering demand for mobile phones and automobiles.
Car sales in Indonesia rose 74 percent to 174,042 units in the first three months of this year from a year earlier, according to the Association of Indonesian Automotive Industry. Cement consumption rose to 10.3 million tons in the first quarter from 8.98 million tons a year earlier.
“A more and more positive story is coming from Indonesia,” said Rudyanto Somawihardja, president director of PT Sinar Mitra Sepadan Finance. “Car sales are rising, cement sales are picking up, signaling an increase in purchasing power.” Sinar Mitra expects revenue to more than double to Rp 3.7 trillion this year from Rp 1.7 trillion in 2009.
Yudhoyono has pledged to double spending on roads, seaports and airports to $140 billion over the next five years to help deliver average growth of 6.6 percent over the remainder of his term ending in 2014.
“With ample liquidity now, banks are more than willing to finance infrastructure projects such seaports and toll roads,” said David E. Sumual, an economist at PT Bank Central Asia.
Indonesia’s economy will probably grow 2.02 percent in the first quarter from the previous three months, after a contraction of 2.4 percent in the October-to-December period, according to a median forecast of 13 economists in a Bloomberg News survey.