By Anant Chandak
BENGALURU- Indonesia’s economic growth likely slowed a little last quarter as exports moderated and high interest rates hurt household consumption, according to a Reuters poll of economists.
Gross domestic product (GDP) in Southeast Asia’s largest economy was expected to have expanded 5.00 percent in the April-June period, according to the median forecast of 24 economists, slightly slower compared with the 5.11 percent growth in January-March.
Forecasts for the data, due on Aug, 5, ranged from 3.67 percent to 5.10 percent .
On a quarter-on-quarter basis, the economy likely grew 3.71 percent last quarter, compared with a contraction of 0.83 percent in the first three months of the year, according to a smaller sample in the July 24-31 Reuters poll.
“We expect economic growth in Indonesia to slow marginally year-on-year in the second quarter. This reflects Bank Indonesia’s 25-basis point rate hike in April, which has put pressure on household consumption and reduced investment,” said Jeemin Bang, associate economist at Moody’s Analytics.
“We expect Indonesia’s export growth to stay soft until the end of 2024, which is when the global economy is expected to gain momentum. As private consumption is the primary driver of Indonesia’s economy, weak exports are unlikely to have a major impact on GDP.”
Exports in resource-rich Indonesia have been affected by more than a year of declining commodity prices and an uneven economic recovery in China, the country’s largest trading partner, suggesting growth forecasts were at risk of downgrades.
Indonesia’s GDP growth was expected to average 5.0 percent this year – lower than the government’s target of 5.2 percent – and 5.1 percent next year, according to a separate Reuters survey.
Household consumption, which accounts for more than half of the economy, has also been hurt by Bank Indonesia’s 275 basis points of interest rate hikes since August 2022, contributing to the decline last quarter.
“We see a trend towards softening growth, primarily due to the impact of persistently high US and global interest rates, a sluggish recovery in China,” said Hosianna Situmorang, economist at Bank Danamon.
“Higher interest rates for longer has subdued global demand, thereby affecting Indonesia’s export surplus… However, we are optimistic conditions will improve in 2025.”
Meanwhile, Indonesia’s annual inflation eased more than expected in July to stand at 2.13 percent , its lowest since February 2022 and in the bottom half of the central bank’s target range of 1.5 percent to 3.5 percent , data from the statistics bureau showed on Thursday.
A Reuters poll of economists had expected July headline inflation of 2.40 percent , down from June’s rate of 2.51 percent .
Core inflation, which strips out government-controlled prices and volatile food prices, edged up to 1.95 percent in July, from 1.90 percent the previous month. The poll had forecast 1.90 percent .
Inflation has kept within the central bank’s target range since the middle of last year, but Bank Indonesia (BI) has held back from easing monetary policy as it focused on keeping the rupiah steady amid global financial market uncertainties.
The consumer price index in July fell 0.18 percent on a monthly basis, with prices of shallots, chillis, and chicken contributing the most to the decline. An increase of 0.10 percent was predicted by economists in the poll.
Economists expect the room for a rate cut by BI this year will hinge on rupiah movement, with pressure on the currency seen persisting.
“The rupiah is still quite under pressure and we are entering a (government) transition period amidst the potential rise in the current account deficit,” said HosiannaSitumorang, an economist with Bank Danamon.
She expected that BI had room to cut by 25 basis points in the last quarter of 2024.
DBS Bank economist Radhika Rao said BI’s next move depends on the strength of the US dollar and the timing of a rate cut by the US Federal Reserve.
“The central bank will likely weigh easing inflation on one hand and need for financial market stability on the other,” she said, while forecasting BI to stand pat for the rest of 2024. – Reuters
