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Indonesia's first-quarter GDP growth seen edging up, but recovery still sluggish
May 4, 2017 / 6:39 AM / 3 months ago

Indonesia's first-quarter GDP growth seen edging up, but recovery still sluggish

Cranes are seen at a construction site inside Jakarta's business district, Indonesia February 23, 2016.Darren Whiteside

JAKARTA (Reuters) - Indonesia's economy is expected to have picked up modest speed in the first quarter thanks to improving exports, though the resource-rich nation remains stuck in low recovery mode partly as lending and consumption have failed to grow strongly.

Growth in Southeast Asia's largest economy had been slowing in each of the past five years up to 2015, due to falling exports, weak investment, infrastructure bottlenecks and waning consumption.

As commodity prices recovered last year, growth accelerated to 5.02 percent, but a soft reading in the fourth quarter highlighted Indonesia's struggle to mount a strong rebound.

Analysts in a Reuters poll expect the sluggish recovery to continue, picking a median forecast for 2017's first quarter at 5.00 percent, just a touch stronger than the previous quarter's 4.94 percent.

"We don't expect to see much of a recovery in the first quarter of this year," Capital Economics' analyst Gareth Leather said in a note, adding that GDP growth will remain stuck around 5 percent for sometime.

Household consumption, which accounts for more than half of Indonesia's GDP, probably weakened a little as indicated by sluggish retail and motorcycle sales, although car sales continued to perform better.

Indonesia's central bank governor Agus Martowardojo said the first quarter was "not optimal", blaming consolidation in the banking industry and private sector.

BI has not been able to get banks to lend more and stimulate the economy - partly due to a bad loans problem - despite having cut its benchmark 150 basis points and relaxed some lending rules last year. Loan growth as of February remained relatively weak compared to BI's 2017 target.

But some analysts argued better exports and investment may have offset some of that weakness.

"While many observers are understandably downbeat .., recent upside surprises in investment and exports indicators could potentially offset weakness in low-end consumption," Credit Suisse's economist Santitarn Sathirathai said.

As prices of its main commodities became more favorable, Indonesia's exports grew more than 20 percent by value year-on-year in the first quarter, and up 6.5 percent by volume, according to the statistics bureau.

Some economists say BI may not be able to ease monetary policy more this year due to rising inflation at home and a number of global risks that could affect the rupiah IDR=.

At its last policy meeting, BI officials said the bank's stance is leaning toward neutral. Martowardojo last week said there was "no room yet" for more loosening and stressed the importance of maintaining stability as a base for stronger growth.

The government has pledged to support the economy this year. Finance Minister Sri Mulyani Indrawati told Reuters in an interview there will be no spending cut this year as she gave a better-than-target forecast for 2017 growth at 5.2 percent.

The median forecast for 20017 growth in the Reuters poll was 5.15 percent. The official government growth target is 5.1 percent.

Reporting by Gayatri Suroyo; Editing by Shri Navaratnam

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