Efforts to raise people's purchasing power and household consumption in Indonesia will be key to push for higher economic growth in 2016. According to the latest data from Statistics Indonesia (BPS), Indonesia's gross domestic product (GDP) growth reached 4.92 percent (y/y) in the first quarter of 2016. Although this result failed to meet analysts' projections (which generally stood around 5 percent y/y), it was higher than the 4.73 percent (y/y) economic growth pace that was posted in the same quarter one year earlier.
Growth of household consumption in Indonesia, which accounts for about 57 percent of the nation's overall economic growth, fell to 4.94 percent (y/y) in Q1-2016 (from a 5.01 percent y/y growth pace one year earlier). This is a cause for concern and alarm because controlled inflation as well as low energy prices should have caused rising household consumption rather than slumping consumption growth. Apparently Indonesia's middle and higher class are still somewhat hesitant to spend amid persistent global economic uncertainty. This development jeopardizes the achieving of Indonesia's economic growth targets this year because household consumption is the main driver of the nation's economic growth. And rising government spending may not be enough to offset the negative impact of slowing household consumption growth.
Economist Lana Soelistianingsih, on the other hand, says slowing household consumption in Q1-2016 occurred because the Indonesian people are preparing to spend more robustly in the second and third quarters of the year. In Q2 and Q3 the people tend to raise spending due to the Ramadan (Islamic fasting month), Idul Fitri festivities and the new school year. Meanwhile, Bank Indonesia official Tirta Segara believes Indonesia's household consumption will improve in line with controlled inflation and expectation of rising incomes this year.
Investment realization growth in Indonesia has also not lived up to expectation at +5.57 percent (y/y) in Q1-2016, while Indonesia's export performance continued to plunge drastically. Government spending was also limited (a normal phenomenon at the year-start), growing 2.93 percent (y/y) in Q1-2016, but down 49.5 percent on a quarterly basis (as government spending tends to accumulate at the year-end).
Indonesia's Quarterly GDP Growth 2009-2016 (annual % change):
|Year|| Quarter I
||Quarter II||Quarter III||Quarter IV||Full-Year|
Source: Statistics Indonesia (BPS)
Indonesian Finance Minister Bambang Brodjonegoro and Chief Economics Minister Darmin Nasution both expect the nation's GDP growth to accelerate in the second quarter of the year particularly on rising government spending. The Indonesian government targets a GDP growth pace of 5.3 percent (y/y) in full-year 2016. Most analysts, however, expect economic growth realization this year in the range of 4.9 - 5.2 (y/y).