Jakarta – Indonesia's economy grew 5.2 percent in the final quarter of 2008, the slowest annual pace since mid 2006, and is expected to cool further, raising the spectre of deeper interest rate cuts and higher budget spending.
The economy and jobs are among the key issues for many Indonesians this year as the world's fourth most populous country holds parliamentary elections in April and presidential elections in July.
Analysts had expected annual growth in the final three months of the year to slow to 5.7 percent from 6.1 percent in the third quarter and the authorities forecast a further slowdown to 4-5 percent growth this year.
Still, Southeast Asia's biggest economy has outperformed many of its regional peers in the face of the global financial crisis and the authorities are keen to maintain solid growth in the election year.
The central bank has signalled readiness to cut interest rates further after it trimmed its main rate by 125 basis points since December and the government has proposed a 71 trillion rupiah ($6.1 billion) stimulus package.
"The weaker growth in the final quarter was mainly attributable to the slump in exports growth as the global economy slowed," said Joanna Tan, an economist at Forecast PTE Ltd in Singapore.
"Going forward, while the April elections and subsequently July presidential elections could bring about some support in domestic demand, we do not expect a big boost in consumption with the overarching factors of risk aversion and growth risks still taking precedence," Tan added.
The rupiah was largely unchanged at 11,785 per dollar at 0652 GMT after the GDP announcement, while the Indonesia Composite Index, the stock market benchmark, was also little moved, up 0.36 percent after the announcement.
The statistics bureau also reported a quarter-on-quarter contraction of 3.6 percent in the fourth quarter, against a forecast of a 2.62 percent economic contraction in a Reuters poll. The quarter on quarter growth is not seasonally adjusted.
Full year growth came in at 6.1 percent, in line with analysts' forecast of 6.12 percent, and still about the 6.0 percent rate, which analysts say is needed to reduce unemployment in Indonesia.
Under President Susilo Bambang Yudhoyono, who won Indonesia's first direct presidential election in 2004, the economy has experienced its strongest growth in more than a decade.
But economists warn that the global downturn that has crimped demand for Indonesia's key commodities such as palm oil, coal, tin and rubber.
They say that while Indonesia is less reliant on exports than some other Asian countries, millions of Indonesians work in export-related sectors and the spectre of big job losses is a major concern for the government ahead of the April 9 general election and July 8 presidential election.
[Reporting by Adriana Nina Kusuma; Writing by Dicky Kristanto; Editing by Ed Davies.]