Thu, Feb 06, 2014 - Page 15 News List

Indonesia’s growth at four-year low, but improving


Indonesia’s economy last year grew at its slowest pace in four years, data showed yesterday, but Southeast Asia’s biggest still beat market expectations and showed signs of improvement, despite being hard hit by emerging market turmoil.

Indonesia’s economy last year grew 5.78 percent, the official statistics agency said, marking the first time that it has expanded at less than 6 percent since 2009, when it sank to 4.6 percent following the global financial crisis.

However, although last year’s figure is down from 6.23 percent in 2012, it still surpassed forecasts of 5.7 percent growth due to a pick-up in the fourth quarter as exports surged.

Economists said they were surprised by the stronger-than-expected showing, which follows a string of recent positive data, including a surge in the nation’s trade surplus and stabilizing inflation.

“This better-than-expected figure is mostly due to a jump in exports in the last three months,” Bank Central Asia’s David Sumual said, pointing in particular to more mineral shipments before a partial export ban came into force last month.

Indonesia was one of the hardest hit countries when foreign funds were pulled out of emerging markets last summer on the back of fears thatthe US Federal Reserve was poised to reduce its huge stimulus program.

The Fed’s bond-buying scheme, which was launched in late 2012, was credited with sparking a rally in emerging markets, with investors seeking out better returns on their profits.

Yet as the US economy strengthened and speculation grew the program would be tapered off, investors dumped developing economy stocks and currencies, sending shock waves through emerging markets from Indonesia and India, to Turkey and Brazil.

Indonesia was also affected by a slowdown in demand for exports from China and domestic factors, including a large current account deficit, surging inflation after a fuel price hike and policies criticized as nationalistic.

The Jakarta Stock Exchange plummeted from a record high of more than 5,000 in May last year to below 4,000 in September, while the rupiah lost more than 25 percent against the US dollar last year.

Authorities scrambled to shore up the economy, hiking interest rates 175 basis points between June and November last year, although analysts warned that the aggressive tightening would weigh on growth.

The Indoanesian authorities also introduced a raft of policies aimed at boosting confidence, such as easing rules for foreign investors in sectors including power plants, ports and airports.

Emerging market jitters have returned in recent days after the Fed implemented a second successive cut to its stimulus and negative manufacturing data heightened fears about China and the US.

A huge current account deficit has also added to pressure on the Indonesian economy. The deficit widened to US$9.8 billion in the second quarter, the biggest shortfall since the Asian financial crisis of the late 1990s.

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