High inflation at the beginning of the third quarter of 2013 (July and August) impacted on the purchasing power of Indonesians and is thus expected to cause a weakening of household consumption, the pillar of support to the country's economic growth.

In July 2013, monthly inflation accelerated by 3.29 percent while in August it was still high at 1.12 percent. Apart from the impact of rising fuel prices, the inflation rate in Q3-2013 was also ignited by high price volatility of food products. Moreover, the depreciating rupiah resulted in imported inflation.

"Quarter III is actually rather weak. We still see a possibility to equal the GDP growth figure of the second quarter (5.81 percent). However, it seems more likely to slow down slightly." Bambang said after attending a meeting of the Indonesian government and Bank Indonesia, in Jakarta (24/9).

Apart from weakening domestic consumption, GDP growth is also negatively influenced by the slowdown in investments as well as exports that have suffered due to weak global demand. Emerging market economies, which have started to become Indonesia's main export markets, have not yet improved. Bambang said that - in terms of exports - between now and the next few years, Indonesia will be highly dependent on emerging markets. Thus, economic growth in emerging markets will largely determine the performance of Indonesia's exports.

Based on data from Statistics Indonesia (BPS), Indonesian exports to ASEAN member countries in the period between January and July 2012 reached USD $18.036 billion, while during the same period one year later it amounted to USD $18.086 billion. Exports to India between January-July 2012 reached USD $7.112 billion, while in January-July 2013 it amounted to USD $7.723 billion. As such, a small improvement is visible in Indonesia's exports compared to last year.

Indonesia's economic growth has continued to slow down in the last four quarters:

    GDP Growth
Q3-2012        6.2%

Expenditure Growth Rate (yoy) in Q1 and Q2 of 2013:

   Quarter I
 Quarter II
Household Consumption     5.17%     5.06%
Government Consumption
    0.42%     2.13%
    5.90%     4.67%
Export of Goods & Services
    3.39%     4.78%
- minus import goods & services    -0.44%     0.62%

Source: Statistics Indonesia