Indonesia’s economy logged solid growth in the third quarter, although it slowed more than expected to its weakest in two years as exports shrank and household spending softened. Gross domestic product grew 4.94% annually in the July-September quarter, below the 5.17% growth logged in the second quarter and short of the 5.05% predicted by economists.
The economy’s robust performance, despite a decline in commodity prices and global economic slowdown, is a testament to the country’s resilience, Central Statistics Bureau head Amalia Adininggar Widyasanti said at a press conference Monday. But, she added, “the government will continue to monitor and assess the impact of external factors on domestic economic growth.”
Indonesia is a significant coal and palm oil exporter boosted by the global commodities boom. But its economy is vulnerable to rising global risks, particularly as the Russia-Ukraine war and the Israel-Hamas conflict weigh on global demand and crimp supply chains. The country’s exports slumped in the third quarter, a sharp fall compared with the first half, as global demand weakened and prices for its essential products fell. Domestic demand also softened, especially in sectors such as consumer goods and housing.
Widyasanti said the slowdown was caused by several factors, including a decline in investment, a weakening trend in consumer confidence, and the monetary tightening of many countries worldwide, including the United States. She said several other incentives were being explored to boost domestic demand, such as waiving value-added tax on property purchases.
Analysts say the Indonesian economy may have peaked this year. Its growth rate has been hovering around 5 percent since President Joko Widodo came to power in 2014, well below the 7 percent he pledged during his campaign. The coronavirus pandemic has slowed tourism and trade, and measures Jakarta has taken to control the spread of the virus have further hampered demand.
But, despite the slowdown, analysts expect a rebound in the fourth quarter thanks to seasonal factors and higher spending by businesses ahead of next February’s presidential election. In the longer term, however, capital economist Gareth Leather warns that the country’s growth could stall as the effects of higher interest rates and lower commodity prices kick in. “The current growth momentum is likely to be as good as it gets for Indonesia, given the impact of slowing global demand and a cooling commodity price recovery,” he said. “We believe that growth will slow further in the coming quarters as a result of these headwinds.”
