Economy of Indonesia : GDP Expands 5.02 Percent in Q3-2016

Jakarta, 08 Safar 1438/08 November 2016 (MINA) – The Central Statistics Agency (BPS) announced that Indonesia’s gross domestic product (GDP) expanded by 5.02 percent year-on-year (y/y) in the third quarter of 2016, down from a revised 5.19 percent (y/y) growth pace in the preceding quarter but in line with forecasts.

BPS Head Suhariyanto was quoted by Indonesia-Investments.com as saying Indonesian economic growth remained subdued amid bleak and uneven growth in major trading partners. Secondly, slowing government spending realization and a cut in spending (to prevent Indonesia’s budget deficit from widening too much) affected the GDP growth rate of Southeast Asia’s largest economy.

Regarding the economic performance of Indonesia’s key trading partners, there is an uneven picture. Whereas China’s economic growth remained stagnant at 6.7 percent (y/y) in Q3-2016, Singapore’s GDP growth fell to 0.6 percent (y/y), and South Korea’s GDP slid to 2.7 percent (y/y).

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However, US GDP growth impressed, touching 2.9 percent (y/y) in Q3-2016 (the fastest recorded US growth rate in two years after expanding an anemic 1.4 percent y/y in the preceding quarter). As such, overall, the global economic picture remains mixed and uncertain. Weak global demand and low commodity prices (with the notable exception of rapidly rising coal prices) still undermine more rapid GDP growth for Indonesia.

Meanwhile, the Indonesian government not only cut government spending by around IDR 137 trillion (approx. USD $10 billion) in the Revised 2016 State Budget, but realization of government spending has also slid. BPS notes that government spending reached IDR 439.73 trillion in the third quarter of 2016, down from realization of IDR 484.78 trillion in the same period one year earlier.

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Still, compared to the third quarter of 2015 Indonesian economic growth accelerated. While, GDP growth was recorded at 4.74 percent (y/y) in Q3-2015, it was recorded at 5.02 percent (y/y) in Q3-2016. On a quarterly, non-seasonally adjusted basis, Indonesian GDP expanded 3.20 percent in the third quarter of 2016.

Traditionally, Indonesia’s GDP growth accelerates more markedly in the last quarter of the year and thus we expect to see full-year GDP growth between 5.0 – 5.1 percent.

Indonesian stocks and the rupiah seem unaffected by the news as Q3-2016 GDP is in line with forecasts.

Indonesia’s benchmark Jakarta Composite Index climbed 0.13 percent in the first trading session on Monday (07/11) supported by the news that the FBI found no new evidence against US presidential candidate Hillary Clinton’s email activities.

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The rupiah is indeed weakening (down 0.19 percent to IDR 13,093 per US dollar) but this performance is in line with the strong US dollar that is strengthening against most currencies as market favorite Clinton’s chances of winning the US election have grown.

Massive government spending

President Joko Widodo has expected that massive government spending would help spur the economy in the final quarter of this year, but warned that slowing global economy would continue to pose potential setbacks to Indonesia’s growth.

According to the president, budget disbursement usually expands in the fourth quarter. That should trigger growth.

Indonesia has forecast economy at 5.2 percent for full-year of 2016. (T/R07/R01)

Mi’raj Islamic News Agency (MINA)