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KN, Indonesia’s economy expanded steadily in the first quarter from a year earlier on resilient domestic consumption, but the impact of tight monetary policy and export weakness casts some doubt about whether that pace of growth can continue.
Southeast Asia’s largest economy grew 5.11% on the year in the first quarter, Indonesia’s official statistics agency said Monday. That compared with the previous quarter’s 5.04% expansion and was in line with economists’ expectations in a Wall Street Journal poll.
On a quarterly basis, gross domestic product contracted 0.83% in the first three months of the year. The drop wasn’t wholly unexpected, with a consensus forecast from HSBC Global Research tipping a decline of 0.9%.
Southeast Asia’s largest economy expanded 5.11 percent, Statistics Indonesia said, the highest level for three quarters and slightly higher than the 5.04 percent expansion in the same period last year.
The economy was boosted by government spending ahead of the country’s presidential election in February and household spending in preparation for the holy month of Ramadan and Eid al-Fitr in April, acting Statistics Indonesia head Amalia Adininggar Widyasanti said. “Household consumption is still the biggest source of the growth in terms of spending,” she told a press conference.
Buoyed by elevated domestic consumption during the Islamic festive season and the presidential election, Indonesia’s economy again exceeded market expectations as it posted gross domestic product (GDP) growth of 5.11 percent year-on-year (yoy) in the first quarter.
Finance Minister Sri Mulyani said in a press statement released that the quality of economic growth was “increasing significantly”, given that the unemployment rate had dropped below the pre-pandemic level.
The government sees firms from the United Arab Emirates as potential partners to develop the downstream aluminum industry and build renewable energy projects in Indonesia, an Investment Ministry official said. Investment Ministry senior advisor Pradana Indraputra said he hoped the UAE would increase investment in the downstream and renewable energy sectors, including in “green aluminum”, which global industry needed, including for automobile production.
Indonesia’s central bank is “ready for the worst” and will provide more support for the rupiah if needed, the head of its monetary management department has said. Bank Indonesia was prepared to intervene in the currency market — as it did last month when the rupiah hit multiyear lows — but would not rely solely on intervention, Edi Susianto, the monetary department’s executive director, told the Financial Times. Susianto’s comments come as Asian economies brace for more currency volatility following the US Federal Reserve’s signal this month that it will hold interest rates higher for longer.
Bank Indonesia raised rates unexpectedly late last month and warned of worsening global risks, saying the rate increase was a pre-emptive move to ensure inflation remained within its target.
Despite major implications from the continued strengthening of the US dollar, Finance Minister Sri Mulyani Indrawati said the Indonesian economy expanded by over 5 percent in the first quarter of the year. Official data on first-quarter economic growth from the Central Statistics Agency has yet to be released.
Sri Mulyani attributed the robust growth to increased consumption and investment, as well as surpluses in international trade, amid ongoing global currency fluctuations.
Statistics Indonesia (BPS) Acting Chair Amalia Adininggar Widyasanti said that in April 2024, month-to-month (mtm) inflation reached 0.25 percent, year-on-year (yoy) inflation 3.00 percent, and year-to-date inflation 1.19 percent. At the time of Eid holiday last month, the transportation sector became the largest contributor to inflation, owing primarily to air transportation and intercity transportation costs.
Indonesia recently said that members of the Gulf Cooperation Countries (GCC) should join the Regional Comprehensive Economic Partnership (RCEP) trade pact, thus making it an even larger trading bloc.
The RCEP today encompasses the 10 ASEAN members, as well as its dialogue partners: China, Japan, South Korea, Australia, and New Zealand. The trading pact, which makes up almost 30 percent of the global gross domestic product (GDP), seeks to lift trade barriers. Sri Lanka and Hong Kong have shown interest in being part of RCEP.
According to a ministerial press statement, top economic minister Airlangga Hartarto recently invited the six-strong GCC to be part of the RCEP at a World Economic Forum (WEF) dialogue in Riyadh. The GCC members include Saudi Arabia, the United Arab Emirates (UAE), Kuwait, Oman, Bahrain, and Qatar.
Finance Minister Sri Mulyani Indrawati has ordered the Customs and Excise Directorate General to improve its services after several complaints from Indonesians trying to receive goods from abroad made the rounds on social media. One case commanding attention online is that of Radhika Althaf, who reportedly bought a pair of soccer shoes for Rp 10 million (US$615) from abroad but incurred customs duties to the tune of Rp 31 million as he tried to receive the goods.
Minister of Finance Sri Mulyani Indrawati projected that Indonesia’s economic growth will hit 5.17 percent in the first quarter (Q1) of this year. “With positive trends at the consumer level, manufacturing industry, foreign direct investment, and price managers’ index (PMI), we forecast that Indonesia’s economic growth will be at 5.17 percent in 2024 Q1,” she remarked at a press conference in Jakarta.
Indrawati also outlined that the International Monetary Fund had projected Indonesia’s economic growth this year to stand at five percent, World Bank estimating 4.9 percent, and the Organization for Economic Cooperation and Development (OECD) forecasting 5.1 percent.
Indonesia needs to anticipate any impact on the domestic economy of the recent escalation in geopolitical tensions in the Middle East and delays in US monetary easing, which will also affect the government’s budget, its finance minister said.
Sri Mulyani Indrawati told a press conference Middle East conflict could disrupt supply chains, especially in the oil and gas sector, and affect commodity prices, which then would affect tax payments from Indonesia’s commodity exporters. Expectations of U.S. interest rates staying higher for longer have also triggered capital outflows that impacted Indonesia’s financial markets, she said.
Continuity is expected to be key in bilateral relations between Indonesia and Singapore as well as on the regional economic integration front, said Singapore Minister for Foreign Affairs Vivian Balakrishnan.
While Indonesian president-elect and Minister of Defence Prabowo Subianto’s focus lies on uplifting opportunities within Indonesia, Dr Balakrishnan said: “I sensed he also understands Indonesia’s importance to Asean and the greater prospects for all of Asean – the more we integrate, the more we double down on cooperation, the more we facilitate investments into productive sectors, the more we do in the green economy, the more we achieve on the digital front.”
Two years after the entry into force of the Indonesia-EFTA CEPA, bilateral trade between the two countries tripled to over US$ 3 billion with a consecutive surplus of over US$ 2 billion for Indonesia,” said Director General for America-Europe of the Indonesian Ministry of Foreign Affairs, Ambassador Umar Hadi, at the 10th Joint Economic Trade and Commission (JETC) Indonesia-Switzerland meeting in Bern. The 10th JETC meeting led by the Director General for Amerop of the Indonesian Ministry of Foreign Affairs, Ambassador Umar Hadi and the Head of Bilateral Economic Relations, State Secretariat for Economic Affairs (SECO), Federal Department of Economic Affairs (EAER) of Switzerland.
Photo: Ilustration, source: StrategiNews
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