The central bank of Indonesia (Bank Indonesia) revised down its economic growth outlook for Indonesia in 2015. In a meeting with the House of Representatives’ Budget Committee, Bank Indonesia Governor Agus Martowardojo said that Indonesia’s GDP growth is expected to reach 5.1 percent (y/y) this year. Previously, the central bank projected economic growth in the range of 5.4 to 5.8 percent (y/y). However, after seeing weak growth in the first quarter (4.71 percent y/y), projections had to be revised.
Indonesia’s economic growth had declined to a five-year low in Q1-2015 due to external and internal factors. Externally, sluggish global economic growth impacted on Indonesia’s export performance. Particularly slowing growth in China (one of the main trading partners of Indonesia) has softened commodity prices, implying that the value of Indonesian exports (being an important commodity exporter) have dropped considerably. Based on the latest data from Statistics Indonesia (BPS), Indonesia’s exports contracted by 8.5 percent (y/y) to USD $13.1 billion in April 2015.
Moreover, there has been a high degree of uncertainty and volatility in global financial markets due to the Greek debt crisis in the Eurozone and looming further monetary tightening in the USA. Both cases can potentially cause major capital outflows from emerging economies, including Indonesia.
Internally, credit growth, general economic activity and purchasing power of the people has been weakened by the central bank’s high interest rate environment with the benchmark interest rate (BI rate) at 7.50 percent. Bank Indonesia maintains a tight monetary stance as it combats high inflation (ahead of the Ramadan and Idul Fitri celebrations that always trigger inflationary pressures), a still wide current account deficit, and a weakening rupiah (amid bullish US dollar momentum).
However, Martowardojo emphasized that economic growth in 2015 is expected to be better than last year. Last year, the economy of Indonesia expanded 5.02 percent (y/y) to IDR 8,354 trillion (USD $664 billion).
Although having slowed to 4.71 percent (y/y) in Q1-2015, the economy is expected to accelerate to 4.9 percent (y/y) in Q2-2015 boosted by government consumption and construction investment driven by government-led infrastructure development. In Q3-2015 and Q4-2015 economic growth of Indonesia is expected to accelerate further to 5.3 percent (y/y) and 5.4 percent (y/y), respectively, driven by consumption and investment.
Indonesia's Quarterly GDP Growth 2009–2015 (annual % change):
|Year|| Quarter I
||Quarter II||Quarter III||Quarter IV|
Source: Statistics Indonesia (BPS)