Indonesia GDP Growth Tops Expectations

Despite falling exports, Indonesia’s economy grew at a faster-than-expected pace in the second quarter driven by household and government spending, official data showed on Monday.

Gross domestic product registered an annual growth of 5.17 percent in the second quarter, following first quarter’s 5.04 percent expansion, Statistics Indonesia said. This was faster than economists’ forecast of 4.93 percent.

Quarter-on-quarter, Southeast Asia’s largest economy grew 3.86 percent, which was also better than the expected 3.72 percent.

On the expenditure-side, household consumption advanced 5.23 percent annually and government spending surged 10.62 percent. At the same time, investment grew 4.63 percent.

Exports and imports decreased 2.75 percent and 3.08 percent, respectively.

With softening inflation, household spending is likely to offset soft export growth in the coming months, ING economist Nicholas Mapa said.

Moreover, increased economic activity ahead of the election in February could also offset the slowing of capital formation, which appears to be weighed down by Bank Indonesia’s recent rate hike cycle, the economist noted.

However, Capital Economics’ Gareth Leather said the official GDP figures are not much reliable and data once again showed that growth was suspiciously stable around 5 percent in the second quarter.

Leather forecasts the economy to struggle in the second half of the year as high interest rates and weaker global demand drag on prospects.

In order to tame inflation, the central bank has lifted its benchmark BI rate by a cumulative 225 basis points since August 2022. The bank forecast the economy to expand in the range of 4.5 percent to 5.3 percent this year.

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