Satria Sambijantoro, Jakarta – Indonesia's impressive period of 6-plus percent economic expansion is over, after its economy posted only 5.8 percent gross domestic product (GDP) growth in the second quarter of this year, with analysts predicting more slowdowns on the way.
The country's 5.8 percent year-on-year growth in the second quarter is its slowest pace in almost three years, with the country previously succeeding in maintaining growth of above 6 percent for 10 consecutive quarters.
The Central Statistics Agency (BPS) reported on Friday that the slowdown was caused by a steep deceleration in investments and moderation in household consumption, which were Indonesia's two major growth drivers, jointly accounting for around 80 percent of its GDP.
In the second quarter of this year, gross fixed capital formation – an indicator of investment – grew only 4.7 percent, as compared to the impressive 12.3 percent recorded in the same period a year earlier. Meanwhile, household consumption decelerated to 5 percent from 5.2 percent.
Finance Minister Chatib Basri, who had previously always expressed optimism that the government would be able meet its annual growth target of 6.3 percent, finally acknowledged that "it would be very difficult, even with all the extra efforts", for Indonesia to grow at such a rate by the end of the year.
"Our growth now can no longer rely only on investment," he told reporters after Friday prayers in his Jakarta office, warning against tighter liquidity in the global economy that could limit both portfolio and direct investment coming into the country.
Responding to the slowdown, the minister said he would focus on propelling consumption. The government would implement policies so that the people's purchasing power would not be affected by surging inflation, which topped its four-year high level of 8.6 percent in July.
"We are now exploring all options from the fiscal side that could spur household consumption," Chatib said. "For example, the government once increased the level of non-taxable income, or PTKP, and we are now studying the possibility of implementing such policies again."
Concerns have arisen on whether Indonesia can sustain its robust economic expansion, with the economy now beset with various problems, notably languid exports stemming from the weak global recovery as well as moderate investment due to regulatory uncertainty ahead of the 2014 elections.
An economic growth of only 5.8 percent means that Indonesia's economy has decelerated for four consecutive quarters.
Analysts warned of steeper deceleration ahead, citing the recent monetary tightening performed by Bank Indonesia (BI), which has jacked up its key interest rate by 75 basis points to 6.5 percent within a two-month timeframe.
"We believe a further slowdown is on the way – loan growth is falling and recent macro-prudential measures will come into effect in the third quarter," said Citi Research economist Helmi Arman, who revised down his outlook for Indonesia's economic growth from 6 to 5.8 percent this year.
BI Governor Agus Martowardojo had forecast that the economy might only grow 5.9 percent both in the third and fourth quarters, with economic growth by year's end expected to fall within the central bank's range of between 5.8 to 6.2 percent.
Nevertheless, Agus reassured that there was nothing to worry about in relation to the slowdown.
He said the robust growth that Indonesia had enjoyed for the past several years was actually unsustainable, citing "structural problems" in the economy, notably the high current account deficit that the country had posted for six consecutive quarters.