Indonesia\'s Growth Slows as Exports Hit

Kamis, 07 Februari 2013 | 08:43

Indonesia\'s gross domestic product grew at its slowest pace in two years as Southeast Asia\'s number one economy felt the impact of a weakening global outlook that hit its key commodity exports particularly hard.The economy grew 6.2 percent last year, driven by strong private consumption. But this was down from 6.5 percent in 2011, as imports outweighed exports for the first time in decades, leaving Indonesia with a trade deficit.

"The global crisis is not over yet — it is reflected in our continued trade deficit," the head of the national statistics bureau, Suryamin, said on Tuesday.

Indonesia has not been badly affected by the weakening global economy thus far, thanks to its strong domestic buying power and abundant natural resources.

Its economic growth was the third strongest in Asia after China and the Philippines. But the prolonged global downturn has put further pressure on the prices of commodities such as palm oil and coal — the country's top exports.

Indonesia is the world's largest exporter of palm oil and thermal coal, used by power stations. It provides about half of China's coal imports.

Last year, Indonesia's imports — including petrol, packaged food and cars — came to US$25.8 billion, about $1.5 billion more than its exports, the first time it recorded an annual trade deficit.

That added little value to the economy, dragging down economic growth, said Sri Soelistyowati, director for expenditure account at the statistics bureau.

"We have to cut down on these so-called 'consumptive imports' and boost the 'productive ones,'" she said, comparing them to imports of raw materials used by factories.

"Last year, imports of petrol accounted for 25 percent of the total imports by value."

In the fourth quarter, investment growth slowed to 7.3 percent from 10 percent a year earlier, according to the statement released on Tuesday.

Private consumption growth fell slightly to 5.4 percent from 5.7 percent. Private consumption made up 54.6 percent of gross domestic product, while investment accounted for 33.2 percent.

Economists remain mixed about the prospects for this year.

Credit Suisse's Robert Prior-Wandesforde, who described Indonesia's economic performance as "a decent 2012," wrote in a research note on Tuesday that he expects growth this year to fall further, to 5.6 percent, a full percentage point below the government's target of 6.6 percent to 6.8 percent.

"This mainly reflects our view that Bank Indonesia will be forced to tighten policy as current account funding problems and an associated inflation disappointment cause the rupiah to depreciate more abruptly," he wrote.

A tightened monetary policy results in higher interest rates, which could cause consumers to spend less and, in turn, have the positive effect of reducing imports.

His growth forecast, however, differs from that of UOB Research's Ho Woei Chen, who expects growth of 6.3 percent.

Eric Sugandi of Standard Chartered Bank in Indonesia predicted 6.5 percent.

"Investment will continue to be strong, the size of Indonesia's middle income will grow," Eric told The Straits Times.

"But going forward, Indonesia should not rely too heavily on private consumption. The country needs to boost savings, which would in turn provide funds to industries to make investments."