Growth slowdown highlights challenge that Indonesia faces

AFP, JAKARTA

Thu, Nov 06, 2014 - Page 15

Indonesia’s economy grew at its slowest pace for five years in the third quarter, official data showed yesterday, underlining the challenge for Indonesian President Joko Widodo to get Southeast Asia’s top economy back on track.

The G20 economy expanded 5.01 percent year-on-year in the three months to the end of September, down from 5.12 percent in the previous quarter, with demand for the country’s key commodities exports continuing to weaken. It was the slowest pace of expansion since the third quarter of 2009 and below economists’ forecasts of 5.1 percent.

“The poor performance highlights the scale of the challenge facing the country’s new president,” Capital Economics Asia economist Gareth Leather said. “Joko Widodo offers Indonesia the prospect of a fresh start after years of policy drift, but he will have his work cut out.”

Widodo, inaugurated last month, has pledged to lift growth to 7 percent over the next two years by overhauling the country’s creaking infrastructure and cutting red tape to attract more foreign investors.

One of his most immediate challenges will be cutting huge government fuel subsidies, blamed for a widening current account deficit.

However, Widodo faces a tough task, as he takes power at a time when growth has slowed from recent highs of more than 6 percent due to weak demand for its commodities exports, in particular from powerhouse China.

Indonesia might also face problems from the US Federal Reserve’s decision last week to end its huge stimulus program, analysts said.

The gradual winding down of the vast bond-buying scheme over the past year has already dried up crucial flows of foreign capital to Indonesia and other emerging markets. Yesterday’s data showed that exports were 0.7 percent lower in the third quarter from the same period a year ago, continuing a recent slide, with the Indonesian government statistics agency blaming weak demand for commodity exports, such as coal and palm oil.

The slowdown in exports has also been driven in part by a controversial ban on the shipment of some mineral ores, which has hit major miners. However, household consumption, which has been a major driver of the economy due to the growth of the middle class, expanded at a healthy 5.44 percent year-on-year.