Bank Indonesia Governor Agus Martowardojo said these expenditure cuts will surely affect the pace of Indonesia's economic growth in the third and fourth quarter of 2016. In both these quarters Bank Indonesia expects to see a growth pace of 5 percent (y/y), considerably below the GDP growth realization of 5.18 percent (y/y) in the second quarter of 2016. The expenditure cuts were necessary to safeguard a stable fiscal deficit in 2016 (particularly weaker-than-estimated tax revenue realization has been a concern).

Indonesia's positive Q2-2016 GDP growth (exceeding basically all analysts' projections) was carried by government investment and improving household consumption. However, with lower-than-initially-planned government expenditure, growth in Southeast Asia's largest economy should be somewhat curtailed for the remainder of the year. Moreover, business activity has remained somewhat subdued in Indonesia as it is still recovering from the negative impact of Indonesia's weakish purchasing power.

Perry Warjiyo, Deputy Governor at Bank Indonesia, said sluggish global economic growth will also continue to put some downward pressure on the GDP growth of emerging markets, including Indonesia. US economic growth is expected to fall below expectations due to weak investment, while Brexit-inflicted uncertainty causes moderate growth in European markets. Lastly, China's economic growth has also remained sluggish as public investment has failed to stimulate an indebted private sector.

Global economic growth is estimated at 3.1 percent (y/y) in 2016 and 3.2 percent (y/y) in 2017 by Bank Indonesia. The 2017 figure was revised down from 3.3 - 3.4 percent (y/y) previously. However, Bank Indonesia added that Indonesia touched the bottom in terms of economic growth in 2015 and therefore GDP growth should accelerate from 2016 onward.

Indonesia's Quarterly GDP Growth 2009-2016 (annual % change):

Year    Quarter I
   Quarter II    Quarter III    Quarter IV    Full-Year
2016        4.91        5.18
2015        4.73        4.66         4.74         5.04         4.8
2014        5.14        5.03         4.92         5.01         5.0
2013        6.03        5.81         5.62         5.72         5.6
2012        6.29        6.36         6.17         6.11         6.0
2011        6.45        6.52         6.49         6.50         6.4
2010        5.99        6.29         5.81         6.81         6.2
2009        4.60         4.37         4.31         4.58         4.6

Source: Statistics Indonesia (BPS)