Indonesia’s economy grows less than forecast on spending cut

Business Monday 06/February/2017 14:15 PM
By: Times News Service
Indonesia’s economy grows less than forecast on spending cut

Jakarta: Indonesia’s economy expanded less than forecast in the fourth quarter as government spending was curbed by a legal cap on the fiscal deficit.
Gross domestic product (GDP) rose 4.94 per cent in the fourth quarter from a year earlier, the statistics bureau said in Jakarta on Monday. The median estimate of economists was for 5 per cent growth. GDP declined 1.77 per cent in the fourth quarter from the previous three months and economists expected a contraction of 1.8 per cent.
The economy grew 5.02 per cent in 2016, matching forecasts. Growth for 2015 was revised to 4.88 per cent from 4.79 per cent and government spending fell 4.05 per cent in fourth quarter from a year earlier while household consumption grew 4.99 per cent.
Big picture
Southeast Asia’s biggest economy is still undershooting President Joko Widodo’s growth target of 7 per cent amid a slowdown in China and lower commodity prices. That’s even after the central bank cut rates six times last year in a bid to boost lending and growth.
While the economy is expected to pick up this year, with the International Monetary Fund forecasting 5.1 per cent growth, the government is warning of headwinds from global uncertainty, including from policies being introduced by US President Donald Trump.
The recent rise in commodity prices has provided a strong terms-of-trade tailwind, said Weiwen Ng, an economist at Australia & New Zealand Banking Group in Singapore.
"This, along with a stabilisation in domestic demand, has mitigated the negative impact that fiscal spending cuts — needed to minimise fiscal slippage in 2016 — have on Q4 growth.”
The data is disappointing with growth now expected to remain stuck at about 5 per cent over the next couple of years as policymakers run out of scope for further stimulus, said Gareth Leather, senior Asia economist at Capital Economics in London.
"The upshot of all this is that while growth is unlikely to slow further, we don’t expect it to accelerate either,” Leather added.