Indonesia's economy grew a more-than-expected 6.35 percent in the year through the first quarter, supported by investment and maintaining a similar expansion rate to the fourth quarter, data showed on Monday. Growth outstripped expectations for gross domestic product to rise 5.5 percent but kept the economy ticking along close to the fourth-quarter's annual pace of 6.65 percent. It also reinforced expectations Indonesia can meet the government's full-year growth target of 5.4 percent, despite recent sharp interest-rate increases, after the economy expanded 5.1 percent in 2004.
"This is great and unexpected. It is a very optimistic sign. I think the main driver is investment since with political stability now, investors have realised their pent-up investment demand, " said Fauzi Ichsan, an economist with Standard Chartered Bank in Jakarta.
The data came amid efforts by the government to improve the investment climate, with the chief economics minister telling foreign reporters on Monday that Jakarta was close to resolving two high-profile disputes involving foreign investors.
The government says it needs to spend $145 billion on infrastructure in the next five years, most of which it hopes will come from the private sector.
The GDP data showed investment, such as in plant, equipment and buildings, rose 15 percent in the year through the first quarter.
That marked a slowdown from 18 percent in the year through the fourth quarter but analysts said the growth rate was still much higher than the largely single-digit increases seen since the 1997/1998 Asian financial crisis.
Private consumption growth slowed to 3.2 percent in the year through the first quarter from 3.75 percent in fourth-quarter data, due in part to the weaker rupiah, analysts said.
Manufacturing, which accounts for around one fifth of GDP, rose 7.05 percent, similar to the rate in fourth-quarter data.
Construction activity accelerated modestly to 8.56 percent in the year through the first quarter from 8.31 percent in the fourth quarter.
But output growth in the agricultural sector, which employs around half of the 100 million-strong workforce, slowed to 0.43 percent, hit by bad weather and floods, from 1.86 percent.
Anton Gunawan, an economist with Citibank in Jakarta, said the headline GDP growth was higher than he had expected.
"I think going forward the growth rate is seen as good enough, even though the central bank has been tightening monetary policy," he said.
The central bank has raised interest rates to try to control inflation and support an ailing rupiah, which fell to a three-year low of 9,800 against the dollar in late April. It was trading around 9,475 per dollar at 1107 GMT.
The benchmark interest rate on three-month central bank certificates (SBIs) was 7.87 percent in the last auction, up around half a percentage point since the start of the year. Despite strong first-quarter GDP growth, analysts have said Indonesia's economy needs to grow around seven percent a year to help reduce chronic unemployment. But Indonesia would need a pick-up in investment to achieve a seven-percent rate of growth, they said.
Foreign investment approvals fell in 2004 from 2003. But approvals in the first four months of 2005 were close to $5 billion, nearly twice as much as a year earlier.
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