Listen to this article
With Indonesia’s latest quarterly GDP reading coming in just below expectations, the outlook for 2017 remains matter of perspective.
The country’s year-on-year GDP growth during the quarter ended December came in at 4.94 per cent, down from Q3 and bringing annual economic expansion to 5.02 per cent. In non-seasonally adjusted, quarter-on-quarter terms, GDP shrank 1.77 per cent.
Weiwen Ng, Asean economist with ANZ, was undaunted by the lower-than-expected annualised growth rate in Q4, noting that growth in investments and exports helped mitigate a contraction in government spending.
A recent rise in commodity prices together with stabilising domestic demand and expectations of infrastructure investment were enough to prompt a more optimistic outlook for growth from Mr Ng:
Looking ahead, we expect an incipient cyclical pickup, driven by infrastructure investment as well as improving terms of trade. We maintain our GDP growth forecast of 5.4% for 2017. While inflation is on a significantly higher glide path due to administered price adjustments, we expect Bank Indonesia to peer through the inflation ascent and remain on hold throughout 2017.
In contrast, Gareth Leather, senior Asia economist with Capital Economics, pointed to contraction in government spending offsetting a rise in investment and export growth during the quarter ended December.
While agreeing that Bank Indonesia was unlikely to cut rates in 2017, he was less certain about the sustainability of the commodity price rebound and pointed to the pace of structural reforms as a better barometer for the economy:
President Widodo passed useful reforms to Indonesia’s foreign ownership rules last year, but elsewhere progress has been limited. In particular, no progress has been made in relaxing Indonesia’s strict labour market laws, while the country’s dilapidated infrastructure remains a major constraint on the development of a competitive manufacturing sector.
Mr Leather predicted growth would remain flat at 5 per cent in 2017 – though both economists agreed that Indonesia’s central bank was likely to stand pat on interest rates for the whole of 2017, having cut them six times last year.
Get alerts on Indonesia when a new story is published