Bank Indonesia Expects Indonesian Economy to Grow 5.3% in Q2-2014
The central bank of Indonesia (Bank Indonesia) expects Indonesia’s economy to grow by 5.3 percent in the second quarter of 2014. If realized, it means that gross domestic product (GDP) of Southeast Asia’s largest economy will accelerate from the disappointing GDP growth result recorded in the first quarter of 2014 (5.21 percent). Perry Warjiyo, Deputy Governor at Bank Indonesia, said that growth in Q2-2014 will be primarily supported by household consumption and investments which traditionally peak in the second quarter.
The peak of household consumption, production and investments that usually occurs in the second quarter of the year is caused by the Islamic holy fasting month of Ramadan and subsequent Idul Fitri celebrations. In this period, Indonesian consumers spend more money on clothes, food and other consumption products. Household consumption accounts for about 55 percent of total economic growth in Indonesia.
Indonesia's Quarterly GDP Growth 2009–2014 (annual % change):
|Year|| Quarter I
||Quarter II||Quarter III||Quarter IV|
Source: Statistics Indonesia (BPS)
Gross Domestic Product of Indonesia 2006-2013:
(in billion USD)
(annual percent change)
|GDP per Capita
Sources: World Bank, International Monetary Fund (IMF) and Statistics Indonesia (BPS)
Indonesian economic growth in the first quarter of 2014 (5.21 percent year-on-year) was a disappointment (and far below analysts’ expectations) brought on by the uncertain international context. Uncertainty was caused by further US Federal Reserve tapering and looming US interest rates hikes (which lead to capital outflows from emerging markets such as Indonesia) as well as slowing economic growth in China, one of the most important trading partners of Indonesia. Furthermore, Indonesia has seen slowing domestic consumption (as Bank Indonesia gradually raised its benchmark interest rate last year in order to curb high inflation and to ease the country's wide current account deficit). Lastly, exports - particularly coal and mineral concentrates - have been sluggish (due to continued weak global demand and Indonesia's recently introduced ban on exports of unprocessed minerals).
However, Standard Chartered Bank economist Eric Sugandi believes that Indonesia's economic growth will accelerate to 5.8 percent in 2015 as the country’s trade balance will improve and political uncertainty will have passed after the new government is inaugurated in October 2014. Indonesia’s current account deficit is still problematic although has eased from the record high deficit of USD $9.9 billion, or 4.4 percent of GDP, in the second quarter of 2013. In the first quarter of 2014, the country recorded a current account deficit of USD $4.19 billion, equivalent to 2.06 percent of GDP. Meanwhile, political uncertainty is currently caused by the presidential race between Joko Widodo and Prabowo Subianto; a race which may be tighter than initially expected.
A survey of the Standard Chartered Bank indicated that the middle classes of Indonesia, India, Nigeria, Kenia and Ghana are optimistic about economic growth of each country. This middle class segment believes that their financial position will improve in the next five years. Such optimism implies that the middle classes will spend more in the years ahead (for example on cars, traveling, education, food, smartphones and computers), thus forming an engine of economic growth.
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