Indonesia's economic growth in the first quarter of 2016 could reach 5 percent (or more) year-on-year provided that the government manages to optimize spending on infrastructure projects and improve people's purchasing power. Large drops in domestic car and motorcycle sales so far this year show that Indonesia's purchasing power remains bleak. Other indicators - such as cement and retail sales - are also not too strong. Firmanzah, economist at the Paramadina University, said the 0.09 percent (m/m) deflation that occurred in February could be a sign of further weakening purchasing power.
Household consumption accounts for about 55 percent of total economic growth of Indonesia and therefore the government should raise efforts to improve domestic purchasing power. Although the rupiah has appreciated markedly in recent weeks, Firmanzah said this appreciation has not yet had a positive impact on people's purchasing power. The strengthening of the Indonesian currency does improve foreign investors' confidence in Indonesia's economic fundamentals but if it only involves 'hot money' (which quickly finds its way out of the country) then it brings no fundamental added-value to the economy.
According to Firmanzah, lower fuel prices in Indonesia would support improving purchasing power. Indonesia's state-owned oil & gas firm Pertamina determines new price for gasoline (Premium) and diesel (Solar) each quarter (in line with international crude oil price movements). With the average oil price so far in 2016 (still) being below the average crude price in Q4-2015 there should be room to cut fuel prices in April.
Indonesia's Quarterly GDP Growth 2009–2015 (annual % change):
|Year|| Quarter I
||Quarter II||Quarter III||Quarter IV|
Source: Statistics Indonesia (BPS)