Skip to main content




Indonesia Q3 GDP growth weakest in over 2 years, more stimulus likely

Indonesia Q3 GDP growth weakest in over 2 years, more stimulus likely

The skyline of Indonesia's capital Jakarta. (Photo: AFP/Romeo Gacad)

JAKARTA: Indonesia's economic growth slipped to its weakest in over two years, broadly meeting expectations, data showed on Tuesday (Nov 5), signalling more monetary and fiscal stimulus is on the cards over coming months to spur demand knocked by a global slowdown.

Gross domestic product (GDP) rose 5.02 per cent in the three months ended September from the year-ago quarter, the weakest pace since the second quarter of 2017, the statistics bureau reported.

The figure was close to the 5.01 per cent growth expected in a Reuters poll and compared with the 5.05 per cent expansion in the second quarter.

Though Indonesia - Southeast Asia's largest economy - relies more on domestic demand, its growth has also been hurt by slowing global trade as the US-China tariff dispute shattered its exports. That in turn has dented consumer sentiment and overall domestic consumption.

Some economists said the data pointed to a need for further fiscal and monetary stimulus.

"We think policymakers will want to utilize all possible instruments at hand to support growth," said Bank Danamon economist Wisnu Wardana, noting that all "productive engines" in the economy decelerated.

The fiscal policy imperatives would be under scrutiny given the central bank had already been cutting rates, he said.

Bank Indonesia (BI) has cut interest rates four times by a total of 100 basis points since July and is expected to ease again in coming months.

ANZ analysts said while the data backed its expectation of further monetary easing, GDP growth was likely to stay stuck around 5 per cent without a rebound in commodity prices or global growth.

The rupiah firmed up slightly after the data from 14,020 a dollar to 14,005 by 0600 GMT. The main stock index climbed to 6,219 before the midday break, from 6,201 ahead of the announcement.


President Joko Widodo, who won re-election in April promising more investment opportunities, is under pressure to avoid a sharp downturn.

However, Widodo, who has been warning his cabinet members of the risks of a global recession, has little headroom to open the fiscal spigot as government income has been hit by weak corporate earnings and the broader slowdown.

In the third quarter, growth in household consumption, which makes up over half of Indonesia's GDP, eased slightly to 5 per cent, from 5.2 per cent. Government spending and investment also slowed.

Exports were flat, while imports plunged.

At his inauguration last month, Widodo reiterated his ambitious plans of making Indonesia one of the world's top five economies by 2045 with a GDP worth US$7 trillion.

"To do that, investment must play a much bigger role. Data suggests a long way to go, with contribution to growth at its lowest in three years," said OCBC economist Wellian Wiranto.

Reflecting lowered expectations, Finance Minister Sri Mulyani Indrawati in August cut the 2019 GDP growth outlook to 5.08 per cent, compared to a target of 5.3 per cent.

On Monday, Indrawati said the fiscal deficit would be allowed to widen to 2 per cent of GDP this year, up from 1.84 per cent originally planned, due to revenue pressures.

BI Governor Perry Warjiyo has already flagged room to make policy more accommodative, while a Reuters poll conducted before BI's last meeting on Oct 24 forecast one more 25-bp rate cut by the end of the first half of 2020.

After the data, ING's senior economist Nicholas Mapa said the central bank will probably "reserve ammunition for further stimulus if growth momentum sags further."

The government aims to lift GDP growth to 5.3 per cent in 2020, a target some economists say is too optimistic. 

Source: Reuters/nr


Also worth reading