Indonesia's Growth Continues to Disappoint

CEIC Indonesia Data Talk: Indonesias real Gross Domestic Product (GDP) growth decelerated for a fourth consecutive quarter to 5.81% year-on-year during the second quarter of 2013, from 6.03% during the previous quarter. This decline occurred alongside high inflation (the consumer price index rose by 8.61% year-on-year as of July 2013) and continued depreciation of the Indonesian Rupiah (which traded at IDR10,278/USD as of July 2013 compared to IDR9,929/USD in June and IDR9,485/USD in July 2012). Indonesias disappointing second quarter GDP growth was probably a factor leading into the House of Representatives decision in mid-June 2013 to announce a downward revision to most of its macroeconomic forecasts. In particular, the government reduced its overall 2013 economic growth assumption to 6.3% from 6.8%. At the same time, the administration also drastically revised up its consumer price inflation estimate for 2013 to 7.2% from 4.9%, consistent with rising price pressures from reduced fuel subsidies in June 2013. Another notable modification in the revised macroeconomic outlook was the increasing pessimism concerning the oil and gas sector. The initial assumption suggesting that 900 thousand barrels per day of crude oil would be extracted this year was revised to 840 thousand barrels in line with the reduced petroleum and condensate extraction trend seen in recent years. Indeed, the oil and gas component of real GDP declined by 3.86% year on year during the second quarter, having been on a decline over the past few years. Indonesias petroleum and gas sector accounted for approximately 5% of total GDP as of the 2012 fiscal year (ending December) and presently suffers from declining production owing to diminished oil reserves. While the production of natural gas remains somewhat resilient, average daily production of crude oil and condensate declined by compound annualised rate of approximately 3.37% and 3.78% respectively from 2002-2012, attributable to the lack of investments in the sector, especially with regards to exploration. While Indonesias decelerating GDP growth is disappointing, it was not entirely unanticipated given the prevailing domestic and international conditions. As Bank Indonesia (the central bank) adopts a more contractionary policy stance to prioritise monetary stability (using both inflation and currency management), GDP growth is expected to slow even further, in the short term. Analysts expect further deterioration of growth as private consumption is expected to take a hit both from the overall macroeconomic sentiment and worsening inflation, especially as the full impact of higher fuel prices and the subsequent increases in interest rates take effect. As of the second quarter of 2013, private consumption grew in year on year terms by 5.06% compared to 5.17% during the previous quarter and 5.57% at its recent peak during the third quarter of 2012. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. By W. Meytha - CEIC Analyst Back to Blog
14th August 2013 Indonesia's Growth Continues to Disappoint

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