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Indonesia struggling to accelerate job growth

Reuters / Khmer Times Share:
Indonesian workers are seen at the main construction site of the Mass Rapid Transport. AFP

JAKARTA (Reuters) – Indonesia’s gross domestic product grew more slowly than expected in the second quarter, as private consumption remained lethargic, adding to signs that Southeast Asia’s largest economy is stuck in a low gear and may need more stimulus.

The resource-rich economy grew 5.01 percent in April-June from a year earlier, slightly slower than forecast and unchanged from the first quarter’s pace.

Indonesia has been struggling to accelerate growth to create more jobs for its 250 million population, but analysts say a 5 percent growth rate, the level produced every quarter since the start of 2014, is not enough.

President Joko Widodo promised to revive growth to 7 percent during his five-year term, which ends in 2019. This year, he set a target of 5.2 percent. But some economists said even that could be hard to achieve, and authorities are already hinting at further monetary easing and spending to support the economy.

“All in all, full-year GDP growth in 2017 looks set to reach only 5 to 5.1 percent,” said Rangga Cipta, an economist with Samuel Sekuritas in Jakarta.

Private consumption, which accounts for more than half of Indonesia’s gross domestic product, expanded slightly faster in the second quarter compared to the first quarter, but grew more slowly against a year earlier.

Government and central bank policymakers have publicly stated their bewilderment at why people weren’t spending as much as expected, especially as the Muslim fasting month of Ramadan – traditionally the peak of consumption in Indonesia – fell in May-June in 2017.

During the second quarter, inflation remained comfortably in the central bank’s 3 to 5 percent target, while investment and exports improved. Some officials described the sluggish consumption as “a mystery”.

Gundy Cahyadi, DBS economist in Singapore, said for now he maintains a 5.1 percent GDP growth forecast for the year, but sees “more downside risks” to its 5.4 percent outlook for next year.

Suhariyanto, the head of the statistics bureau, told a news conference there was a slowdown in growth of debit transactions, which could indicate “people psychologically holding back spending to see what’s going on in the global economy”.

The average wage of construction workers and farmers also fell in the quarter, he said.

Political instability was another potential factor, researchers at University of Indonesia said in a note ahead of the data, referring to regional elections in April.

During a bitterly fought contest in Jakarta, where the incumbent Christian and ethnic Chinese governor was put on trial and later jailed for alleged blasphemy, religious tensions reached the highest in decades.

“Protests, which were centred on key administrative and commercial centres in Jakarta, disrupted shopping and other commercial activities,” they said, adding that more affluent consumers delayed durable goods purchases and residential investment.

By sector, growth in trade, manufacturing and agriculture sectors also cooled in April-June.

Capital Economics highlighted risks to growth including depressed commodity prices and the government’s struggle to push through reforms. “We see little prospects of a sustained recovery,” the consultancy wrote.

Bank Indonesia Governor Agus Martowardojo has flagged a possibility of more monetary easing to support growth. BI slashed its benchmark rate six times in 2016 to 4.75 percent and eased lending rules.

The government has also obtained parliamentary approval to increase spending this year, including on infrastructure.

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