In response to the release of Indonesia’s official Q2-2015 GDP growth figure, which puts the country’s economic growth pace at 4.67 percent year-on-year (a six-year low), President Joko Widodo said the economy of Indonesia is bound to improve in the second quarter of the year, particularly from September onwards. Widodo said slowing economic growth was the result of troubled government budget absorption at both the central level and regional level. Moreover, the country has been plagued by external factors.
These external factors involve the negative influence of sluggish global economic growth (particularly China’s economic slowdown implies curbed export performance of Indonesia, specifically impacting on commodity exports) and uncertainty about the timing of higher US interest rates as well as concern about the Greek debt case that filled pages of most newspapers in previous months.
When asked whether economic growth can reach +5 percent in full-year 2015, Widodo replied that he is not sure as there are many factors at play that influence Indonesia’s economic performance. As such, improved government spending cannot solely push economic growth markedly higher. In order to achieve the government target, external factors need to improve significantly. However, there are no signs that, for example, commodity prices will rise soon.
In the first half of 2015 the Indonesian government only spent 11 percent of its USD $20 billion infrastructure budget mainly due to bureaucratic troubles. However, according to the latest news stories, government spending on infrastructure development has picked up since May 2015. Government-led infrastructure development is regarded as an important strategy to boost economic growth in the remainder of 2015.
Widodo added that spending of government-owned enterprises remains sluggish as well. During the first half of 2015, state-controlled companies only spent 37 percent of their total capital expenditure programs.
In the Revised 2015 State Budget the government still targets GDP growth of 5.2 percent (y/y) in 2015 but it is highly unlikely that Southeast Asia’s largest economy can meet this target.
Indonesia's Quarterly GDP Growth 2009–2015 (annual % change):
|Year|| Quarter I
||Quarter II||Quarter III||Quarter IV|
Source: Statistics Indonesia (BPS)