Last updated: February 7, 2011 10:16 pm

Indonesian growth hits six-year high

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Indonesia’s economy grew at its fastest pace in six years in the fourth quarter of 2010, beating economists’ forecasts and heightening concerns about overheating.

Indonesian GDP

The economy expanded 6.9 per cent in the three months ending in December compared to a year earlier, mirroring a spurt across much of Asia in the last quarter of 2010, with many countries defying expectations of a slowdown caused by stuttering western demand and tighter monetary policy.

The region’s robust performance was led by China, which posted annual growth of 10.3 per cent, up from 9.2 per cent in 2009. Singapore, a regional bellwether, grew by 14.7 per cent on preliminary estimates, with neighbouring Malaysia likely to achieve about 7 per cent.

Indonesia joined an Asian-wide battle to curb inflation last Friday, with Bank Indonesia lifting its key lending rate 25 basis points to 6.75 per cent, the first increase in more than two years. The move brought to an end an 18-month period of record low borrowing costs.

The quick pace of growth drew calls for the central bank to take a hawkish stance on inflation. “Not only does this print validate Bank Indonesia’s recent move, it also necessitates its future ones. No room for shyness here. We expect two more 25bps back-to-back rate hikes in the coming months, bringing the policy rate to 7.25% in April,” said Wellian Wiranto of HSBC.

The rate of expansion could also worry investors already concerned by a 15 per cent food price spike last month.

Preliminary 2010 growth was 6.1 per cent, up from 4.5 per cent in 2009, the statistics agency said. The most robust showing was in the transportation, telecommunication and commercial services sectors, it said. Foreign direct investment hit a new record at more than $16bn.

Indonesia’s per capita gross domestic product surpassed $3,000 last year, lifting south-east Asia’s largest economy into the low middle income category for the first time. Average income for the country’s 240m population jumped 13 per cent, or roughly $300 in 2010.

Leading indicators such as manufacturing output suggest that Asian economic activity remained strong in January, with factory input prices rising fast, generating widespread calls for early action by central banks to head off inflation.

However, few Asian economies are expected to maintain last year’s breakneck pace through the year. Singapore is forecasting a slowdown to between 4 per cent and 6 per cent, while Taiwan recently predicted 2011 growth of 5.0 per cent, about half a preliminary estimate for last year.

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