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ANZ revises down Indonesia’s 2014 economic growth after weaker Q3 GDP data

JAKARTA (Rambu Energy) – An economist with Australian-based bank ANZ has revised down Indonesia’s 2014 economic growth, driven by slow down of investment, after the Central Bureau of Statistic (BPS) issued lower-than-expected third quarter Gross Domestic Product (GDP) data.

The Indonesian Gross Domestic Product (GDP) recorded a growth of 5.01 percent in the third quarter 2014 from the same quarter last year (year-on-year), but down compared to 5.12 percent in previous quarter, indicating a slow-down of economy, the National Bureau of Statistic (BPS).

The Head of BPS Suryamin said in the first three nine months or three quarters, the economy has grown by 5.11 percent. Based on the current value of Gross Domestic Product, the third quarter GDP valued at Rp 2,619.9 trillioin or Rp745.6 trillion based on constant value.

ANZ economist for ASEAN and Pacific region Daniel Wilson, CFA, said in a report that the Q3 economic data shows that the cyclical downturn in investment in Indonesia still continues.

“Investment remains in a cyclical downturn, dragging on overall GDP,” he said.

As a result, the bank revises down its 2014 GDP forecast to 5.0 percent year-on-year, from 5.4 percent, implying Q4 2014 growth below 5.0 percent.

“We remain cautiously optimistic on the outlook in 2015 with rationalisation of fuel subsidies freeing up capital for infrastructure development and lower oil prices helping to improve the current account,” Wilson said in its report.

“Reviving investment remains the key to unlocking potential growth over the medium term. Private consumption should continue to provide a floor to growth, but increased savings would be preferred as this would likely support a needed rebound in investment,” he said.

He said on an expenditure basis, consumption and net exports offset moderating investment growth. Private consumption expenditure grew 5.44 percent year-on-year, from 5.59 percent the previous quarter.

The government consumption expenditure increased 4.37 percent against -0.71 percent a year earlier; exports fell 0.7 year yoy, from -0.76 percent; and imports declined 3.38 percent from -3.36 percent.

The investment (Gross Fixed Capital Formation or GFCF) growth declined to 4.0 percent from 5.2 percent the previous quarter.

The ANZ economist said from a production basis, mining remained in the doldrums with manufacturing growth also moderating. Mining growth turned to a minor positive in Q3 at 0.3 percent, from -0.2 percent, but remains well below long term averages.

Manufacturing growth also moderated for the third consecutive quarter, down to 4.6 percent, from 5.0 percent. Improvements were seen in agriculture, utility, and other services growth. Transportation, construction, financial & business services, trade & hotel output moderated.

Wilson said private consumption remained the “bedrock of growth”. Since 2012, only one quarter has recorded growth below 5.0 percent (Q1 2012: 4.9 percent) and contribution to overall GDP has been a strong 2.8-3.1 basis points.

“Consumer confidence remains elevated, but dipped with the prospect of higher fuel prices,” he said.

“Last year’s fuel price hike did little to dent consumption growth, however we anticipate a minor pullback in consumption growth with the upcoming fuel price hike. A decline in consumption growth would be beneficial to the economy, in our view, as savings might increase which in turn should support a rebound in investment,” he said.

The ANZ econmist noted that building investment remains strong, however foreign transport and machinery investment were subdued. This has historically been aligned to the mining sector, which has been hit by lower commodity prices and restrictive government policies.

Intensifying growth in other sectors of the economy, particularly manufacturing, through reducing red-tape and other barriers to entry will be key in lifting potential growth over the medium term.

The external contribution was positive in the third quarter, but could turn negative in the foruth quarter on high base effects.

“Flat exports amid falling imports drove overall positive contribution in net-exports. Though exports may tick higher in Q4, next year’s outlook remains clouded by a moderating growth path in China and lower global demand for commodities,” Wilson said. (*)

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