Jakarta trumpets surprise growth figures

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Jakarta’s economy and politics are looking more stable. Source: Wikimedia

Indonesia’s economy grew faster than expected at the end of last year as President Joko Widodo’s moves to boost public spending began to have an effect on Asean’s largest economy.

GDP growth reached 5.04 per cent in the final quarter of last year, Jakarta announced, driven by a 7.3 per cent rise in public spending.

To aid growth, Indonesia’s central bank cut its benchmark interest rate by 25 basis points in January, for the first time in 11 months to 7.25 per cent.

And the rate of growth has exceeded market estimates.

Indonesian growth disappointed in the first three quarters of 2015 and pundits questioned if Widodo, Indonesia’s first leader from outside the political and military elite, had the political standing to push through reforms.

Economists believe that state spending would be examined, as private consumption remains weak.

Overall year growth was 4.8 per cent, the weakest since the global financial crisis, suggesting the Chinese slowdown and low commodity prices were hurting the resource-rich economy.

Wellian Wiranto of Singapore’s OCBC Bank said the latest data would increase investor optimism and bolster confidence in the Widodo administration.

“That can be a much more powerful multiplier effect beyond just the immediate pick-up in demand for extra jobs, goods and services from the projects,” he said.

“The government appears to have found better footing by now and infrastructure projects would start to help momentum more forcefully.”

The president’s position has been reinforced as he has reshuffled his cabinet and added new parties to his ruling coalition.

“We have passed the worst but I wouldn’t say it’s going to be a straight line up from here,” explained Herald van der Linde, Asia equity strategist at HSBC. “[Widodo] has been able in the last eight months to rebuild a coalition . . . he has got a majority in the cabinet as well and it seems like he’s able to get things through.”

Widodo has passed several economic reforms since September, streamlining overlapping regulations, reforming the erratic minimum wage and offering other concessions to business.

“Long-term these reforms will have an effect,” said Jahanzeb Naseer at Credit Suisse in Jakarta. “In the short term, as people try to figure out how they affect business, it may even slow things down a bit.”

Glenn Maguire, chief economist at ANZ said: “Private consumption and public investment will be the keys to the 2016 outlook and if neither of these enter into a durable recovery then the probability of Indonesia moving sustainably above what we perceive to be a 4.5-5.0 per cent growth funk still seem rather low at this time.”