Indonesia Q1 GDP growth seen at 5.18pc, consumption still weak

JAKARTA: Indonesia's economic growth rate likely was a touch weaker in 2018's first three months than in the previous quarter as lacklustre consumption continued to constraint the pace, according to a Reuters poll concluded on Thursday.

For years, annual growth in Southeast Asia's largest economy has hovered at around 5 percent. Last year's 5.07 percent clip was the best since 2013, but still far below the 7 percent President Joko Widodo has aimed to achieve.

For January-March, the median forecast of 12 analysts in the poll was annual expansion of 5.18 percent. That's above the central bank's outlook of 5.1 percent and a tad below the fourth quarter's 5.19 percent.

David Sumual, chief economist of Bank Central Asia, said private consumption, which accounts for more than half of Indonesia's economy, likely grew at the same sluggish pace as in the past few quarters despite low inflation and the government's increased social assistance programme in 2018.

"Investment had relatively improved, but overall growth remained weak," Sumual said.

A number of indicators, from meagre retail sales growth to weak earnings for consumer goods companies, showed that consumption remained tepid in January-March.

INVESTMENT INDICATOR

Some economists cited rising imports of raw materials and machinery as indicators of stronger investment in the first quarter. Meanwhile, exports rose at a weaker pace than imports in the period.

If the economic growth rate does not move well above 5 percent, that could be used by an opponent in the 2019 presidential election campaign to criticise Widodo, who is widely expected to seek a second five-year term

Critics said a number of populist price control measures recently announced by the government may have been introduced to help Widodo in the elections.

A low growth rate could also be problematic for Bank Indonesia (BI), as it tries to balance the need to contain capital outflows that are pressuring the rupiah with efforts to spur expansion. In the past week, the rupiah has been trading at its lowest level since 2016.

BI, which cut its main policy rate by a total of 200 basis points in 2016 and 2017, last week said it would be prepared to raise the benchmark if rupiah weakness threatened its inflation target or financial stability.

At its March policy meeting, BI said its past easing, including some tweaks to rules on reserve requirements, was enough to support growth. BI's next policy meeting is May 16-17.