Published November 05, 2012
JAKARTA – Indonesia's economy grew 6.2 percent in the third quarter from a year earlier, in line with forecasts, as the global downturn finally began to drag on a country whose resilience has attracted a flood of foreign investment this year.
A slide in exports saw the annual rate of gross domestic product growth in the G20 economy ease from 6.4 percent in the second quarter, remaining strong by global standards but at the slackest pace nonetheless since the third quarter of 2010.
"Q3 GDP matched the consensus, signaling some moderation in the momentum, though nothing to be alarmed about as Indonesia is still amongst the fastest growing economies in the region," said Radhika Rao, an economist at Forecast in Singapore.
"The subdued exports performance could emerge as the main soft spot, with the slowdown in imports in recent months to stoke concerns over the sustainability of a strong investments cycle."
Statistics bureau official Suhariyanto said the trade situation meant it would be difficult to reach a government forecast for steady full year growth of 6.5 percent, and saw 6.2-6.3 percent as likely - in line with economists' views.
Southeast Asian stock markets are among the world's best performers in 2012 and the region's biggest economy is seeing record foreign direct investment after being upgraded by rating agencies for its newfound political and economic stability.
But the allure has been fading a little in recent months, as weak global demand for Indonesia's commodities drags down its exports, leading to trade and current account deficits that have hurt the rupiah, down nearly 6 percent this year making the currency Asia's worst performer.
Imports also started falling in the third quarter, the first sign of weakness in the buoyant domestic demand that has been protecting the world's fourth most populous nation from a harder downturn.
Over two-thirds of Indonesia's exports are commodities such as palm oil and coal, which have been hurt by weaker Chinese demand.
Corporate profit growth has slowed, with the country's biggest listed firm Astra International posting just a 2.7 percent rise in third quarter income as its coal, palm and heavy equipment businesses was hit by the commodities downturn.
New government rules curbing raw mineral exports also hurt shipments of metal ores such as nickel and bauxite, and the mining sector has been rattled by disputes between local and foreign investors, rising wages and community protests. The mining sector contracted slightly in the third quarter.
"Any slowdown in China will affect directly our major export commodities," said Bambang Brodjondegoro, a finance ministry official, speaking on the sidelines of a G20 meeting in Mexico. "During this turbulence we can maintain our growth by domestic consumption and investment."
Investment does not seem to have been significantly affected by the global headwinds so far, with foreign direct investment rising 22 percent to a record $5.9 billion in the quarter as firms eye the country's natural resource wealth and growing consumer market.
Indicators for domestic demand, which makes up around 55 percent of the economy, mostly remain strong.
Consumer confidence rose in September because of optimism on jobs and pay, while data released earlier on Monday showed retail sales grew 22 percent year-on-year the same month, the fastest growth this year and accelerating from a revised 10.6 percent increase in August.
Glossy malls in Jakarta are setting up impromptu showrooms touting luxury cars and new apartments, while modern convenience stores are spreading into towns across the sprawling archipelago.
Transport and communications was the highest growing sector at 10.5 percent in the third quarter, while manufacturing, construction and real estate all saw faster growth, the statistics bureau said. Private consumption accelerated overall, though state spending fell.
The central bank has sought to spur domestic consumption with record low interest rates that most economists expect to be maintained well into 2013.
There are signs the economy could pick up again this quarter as manufacturing levels and new export orders increased in October, according to the HSBC purchasing managers index, part of a tentative recovery seen across much of Asia.
"Fiscal spending will generally pick up in the fourth quarter and this will help cushion any drag from moderating investment growth," said Gundy Cahyadi, economist at OCBC. "Bank Indonesia is still unlikely to rush for any rate change for now."
(Additional reporting by Andjarsari Paramaditha in Jakarta and Alexandra Alper in Mexico City; Editing by Alex Richardson)