The economy grew at the strongest pace in six years during the fourth quarter of 2010, blowing past expectations with 6.9 percent year-on-year growth.
Data from the Central Bureau of Statistics (BPS) underscored expectations that Indonesia is in line for a coveted investment grade credit rating in the next year or so to place it alongside the so-called BRIC nations of Brazil, Russia, India and China.
For 2010 as a whole, Southeast Asia's top economy expanded by 6.1 percent. Gross domestic product rose in the fourth quarter by 6.9 percent from a year earlier, well above even the most optimistic forecast of 6.5 percent in a Reuters poll and a 6.3 percent median estimate of 13 economists surveyed by Bloomberg.
"Looking into the expenditure components, the bulwark of private consumption continued to be a major contributor to growth, adding close to 2.6 percentage points to the headline 6.9 percent growth – a tad lower than the 2.9 percentage-point contribution or so in the previous quarters," Wellian Wiranto, an HSBC economist in Singapore, told the Jakarta Globe.
Wellian said in his analysis that government consumption, which typically shoots up in the fourth quarter as ministries and agencies try their best to spend their allocated annual budgets, added an "OK" 1.2 percentage points, compared to 1.8 percentage points last year.
Net exports added 0.5 percentage points, BPS data showed, down from 1.3 percentage points in the third quarter. Investment grew by 9.3 percent year-on-year in the fourth quarter, adding 2.3 percentage points to the headline annual fourth-quarter growth.
The fourth-quarter growth, driven by government spending, domestic consumption and investment, added to other figures showing economies in Southeast Asia grew strongly into the end of the year.
"We expect the Indonesian economy to grow by 6.5 percent in 2011 supported by rising investment and robust consumer spending," said Prakriti Sofat, an economist at Barclays in Singapore.
However, Prakriti said strong growth suggests inflation pressures will remain present. "We continue to expect [Bank Indonesia] to deliver a further 75 basis points worth of back-to-back hikes to put a lid on inflation expectations," she said.
The stock market lost 8.46 points, or 0.24 percent, to close at 3,487.71 in light trading on Monday, while the rupiah edged up to a one-month high. Ten-year bond yields pulled back sharply by more than 70 basis points as investors hunted for bargains after the January sell-off.
Falling government debt levels have spurred sovereign rating upgrades. Moody's Investors Service upgraded Indonesia's credit rating to Ba1 on Jan. 17, the highest level since the 1997 Asian financial crisis, citing the nation's "economic resilience" and improving public debt position.
However, analysts said poor infrastructure remains a hurdle to future growth. The BPS said each percentage point rise in GDP growth adds more than half a million new jobs. Indonesia, the world's top exporter of thermal coal and tin and the biggest producer of palm oil, has benefited from the rise of a number of commodity prices.
[Additional reporting by Reuters & Bloomberg.]