November 5, 2012 6:08 am

Commodities drag down Indonesian growth

Reuters
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JAKARTA, Nov 5 – Indonesia’s economy grew 6.2 per cent in the third quarter from a year earlier, in line with forecasts, as the global downturn finally began to catch up with a country whose resilience has made it a magnet for foreign investors this year.

A slowdown in trade saw the annual rate of gross domestic product growth in the G20 economy ease from 6.4 per cent in the second quarter, remaining strong by global standards but at the slackest pace nonetheless since the third quarter of 2010.

“Q3 GDP matched consensus, signalling some moderation in the momentum, though nothing to be alarmed about as Indonesia is still among the fastest growing economies in the region,” said Radhika Rao, an economist at Forecast in Singapore.

“Subdued exports performance could emerge as the main soft spot, with the slowdown in imports in recent months [stoking] concerns over the sustainability of [a] strong investment cycle.”

Southeast Asian stock markets are among the world’s best performers in 2012 and the region’s biggest economy is seeing record foreign direct investment after being upgraded by rating agencies for its new-found political and economic stability.

But the allure has been fading a little in recent months, as weak global demand for its commodities drags down its exports, leading to trade and current account deficits that have hurt the rupiah. It is down nearly 6 per cent this year making the currency Asia’s worst performer.

Imports also started falling in the third quarter, the first sign of weakness in the buoyant domestic demand that has been protecting the world’s fourth most populous nation from a harder downturn.

Over two-thirds of Indonesia’s exports are commodities such as palm oil and coal, which have been hurt by weaker Chinese demand.

Corporate profit growth has slowed, with the country’s biggest listed firm Astra International posting a rise of just 2.7 per cent in third-quarter income as its coal, palm and heavy equipment businesses were hit by the commodities downturn.

New government rules curbing raw mineral exports also hurt shipments of metal ores such as nickel and bauxite, and the mining sector has been rattled by disputes between local and foreign investors, rising wage costs and community protests.

Still, investment does not seem to have been significantly affected so far, with foreign direct investment rising 22 per cent to a record $5.9bn in the quarter, as companies eye the natural resource wealth and a growing consumer market.

Indicators for domestic demand, which makes up around 55 per cent of the economy, mostly remain strong.

Consumer confidence rose in September because of optimism on jobs and pay, while data released earlier on Monday showed retail sales grew 22 per cent year-on-year the same month, accelerating from a revised 10.6 per cent increase in August.

The central bank has sought to spur domestic consumption with record low interest rates that most economists expect to be maintained well into 2013.

© Reuters Limited. Click for restrictions

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