Indonesian Economy Powers Ahead in 1st Quarter

Jakarta Globe, Muhamad Al Azhari, May 10, 2010

Indonesia’s economy grew 5.7 percent year-on-year in the first quarter of 2010 — the fastest pace in more than a year — as steady consumer spending and stronger exports and investment offset weaker government spending.

The expansion was in line with a Bank Indonesia forecast and compared with 5.4 percent year-on-year growth in the fourth quarter of 2009, Central Statistics Agency (BPS) figures revealed on Monday.

Household consumption, which accounted for 57 percent of gross domestic product in the quarter, grew by 3.92 percent from a year ago, slightly down on the fourth quarter’s 3.96 percent year-on-year growth.

“The [overall] figure came in exactly as I have expected,” said Gundy Cahyadi, an economist at OCBC Bank in Singapore. “But the consumption figure came in a little bit on the disappointing side, although there is really no reason for caution at the moment,” he said.

Driven by higher commodity prices, exports grew by a rapid 19.55 percent year-on-year in the first quarter, compared with 3.67 percent year-on-year growth in the previous quarter.

Investments grew by 7.89 percent year-on-year in the quarter, up from 4.18 percent the fourth quarter. Government spending fell 8.8 percent year-on-year, after posting strong 16.97 percent growth in the previous quarter.

“The decling government spending figure reflects that the government has now returned to its typical mode of spending, which is usually low in the early part of the year,” Gundy said.

“The first quarter headline growth number is largely in line with official expectations for 5.7-5.8 percent year-on-year growth and is unlikely to change BI’s current policy stance [still on the neutral to dovish side],” Singapore-based Citigroup analyst Johanna Chua wrote in a note to clients on Monday.

“Market reaction is likely neutral, with developments on the EU sovereign crisis front overshadowing domestic economic conditions,” she wrote.

The slightly subdued household consumption growth indicated that households were still delaying spending, Gundy said.

“This is despite data that showed retail sales, vehicle sales, consumption loans, import growth, have surged higher in the quarter. Part of it could be attributed to some slippage in sentiment during the Bank Century hoo-hah,” he said.

Bloomberg reported last week that car sales increased by 74 percent year-on-year in the first quarter while cement sales were up by 14.7 percent in the quarter.

Gundy said he was still of the opinion that underlying sentiment has picked up in Indonesia and the momentum should be maintained going forward.

“Exports have obviously picked up in the quarter, and not surprisingly given the upside trend in commodities,” he said.

Bank Indonesia, which last week held its benchmark interest rate at a record low 6.5 percent, has sent signals that it would not be rushing to hike the rate, thus providing a conducive environment for the economy to grow faster.