- POSTED: 05 Feb 2014 13:17
Indonesia's economy, Southeast Asia's biggest, grew at its slowest pace in four years in 2013 but still beat expectations and showed signs of improvement despite being hard hit by emerging market turmoil.
JAKARTA: Indonesia's economy, Southeast Asia's biggest, grew at its slowest pace in four years in 2013 but still beat expectations and showed signs of improvement despite being hard hit by emerging market turmoil.
Growth for the year was 5.78 per cent, the official statistics agency said, the first time the economy has expanded at less than six per cent since 2009, when it sank to 4.6 per cent following the global financial crisis.
But last year's figure, down from 6.23 per cent in 2012, still beat economists' forecasts of 5.7 per cent growth after recent signs of strengthening.
Fourth quarter GDP came in at 5.72 per cent on-year, compared to 5.62 per cent in the third quarter.
"Investment has slowed down," said statistics chief Suryamin, pointing to increasing concerns among investors about the state of the country's economy.
But the fact growth was stronger than expected adds to the sense Indonesia may be over the worst. It follows a string of recent positive data, including a surge in the trade surplus and stabilising inflation.
Indonesia was one of the hardest hit countries when foreign funds were pulled out of emerging markets in the summer on fears the US Federal Reserve was poised to reduce the stimulus programme.
The Fed's bond-buying scheme, which was launched in late 2012, was credited with sparking a rally in emerging markets, with investors seeking out better returns on their profits.
But as the US economy strengthened and speculation grew the programme would be tapered off, investors dumped developing economy stocks and currencies, sending shock waves through emerging markets from Indonesia and India to Turkey and Brazil.
As well as external factors, Indonesia's economy was affected by domestic problems such as a large current account deficit, surging inflation after a fuel price hike and policies criticised as nationalistic which undermined investor confidence.
The Jakarta stock exchange plummeted from a record high of more than 5,000 in May to below 4,000 in September, while the rupiah lost more than 25 per cent against the dollar in 2013.
Authorities scrambled to shore up the economy, hiking interest rates 175 basis points between June and November -- although analysts warned the aggressive tightening would weigh on growth.
Emerging market jitters have returned in recent days after the Fed implemented a second successive cut to its stimulus and negative manufacturing data heightened fears about China and the US.
A huge current account deficit has added to pressure on the Indonesian economy. The deficit widened to US$9.8 billion in the second quarter, the biggest shortfall since the Asian financial crisis of the late 1990s.
China slowdown hits exports
Resource-rich Indonesia has also been hard hit by slowing demand for its key commodities exports -- particularly from China, which is suffering a slowdown -- as well as the end of a boom in prices over the past decade.
Indonesia, a sprawling archipelago of more than 17,000 islands and the world's fourth most populous nation, is a major exporter of many commodities, including coal, rubber, nickel, copper and gold.
Critics say policies perceived as nationalistic have also put investors off, such as a ban on the export of some unprocessed mineral ores, while looming elections have heightened business uncertainty.
An increase in fuel prices by up to 44 per cent, one of the government's major economic decisions of last year, pushed up inflation to more than eight per cent and sparked violent protests across the country.
Although the reduction in government subsidies was seen as necessary to help the economy, some believe the increased inflation combined with aggressive monetary tightening has hit consumer spending power and contributed to slower growth.
Despite the slowdown Indonesia still has one of the world's fastest growing economies.