Economy outperforms forecasts in Indonesia

Indonesia’s economy expanded by 5.03% in the first quarter of 2023, driven by improving consumption and government spending, according to data from Statistics Indonesia. The growth rate exceeded the 4.95% median forecast in a Reuters poll and was higher than the 5.01% recorded in Q4 2022. However, it was also noted that post-pandemic recovery has been aided by a commodities-led export boom that could be threatened by the monetary policy tightening of the central bank.

Bank Indonesia (BI) increased interest rates to fight inflation, tightening monetary policy and potentially affecting domestic demand. In the previous months, household consumption grew slightly, while government spending increased by 4% compared to a contraction previously. Meanwhile, export growth slowed to 11.68% from nearly 15% in the fourth quarter. The statistics bureau confirmed exports of Indonesia’s main products, such as coal, palm oil, and metals, remain strong.

Analyst Gareth Leather said that weakening exports and the tightening of monetary policy may cause the economy to struggle over the coming quarters. Although the central bank has paused tightening, some economists predict that BI could keep interest rates steady for the rest of the year, while others believe growth concerns may cause a relaxation of policy.

In the first quarter, the transportation, warehousing and hospitality sectors recorded the fastest year-on-year growth. The central bank predicts that Indonesia’s economic growth will fall between 4.5% to 5.3%, a decrease from 5.3% in 2022. While the economy grew at a faster pace than expected, many believe that Indonesia’s economic momentum could slow down as global demand drops with tighter monetary policies around the world.

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