JAKARTA, Feb 6: Indonesia’s economy expanded 6.5 per cent in the fourth quarter to seal the highest full-year growth in 15 years, a rare case of strength in Asia in the face of Europe’s debt crisis that suggests the central bank will keep rates steady this week.
While other Asian economies, including emerging giants such as China and India, have seen growth slow sharply in the past year as exports felt the euro debt chill, Indonesia has maintained growth above 6 per cent for five straight quarters.
Figures on Monday showed fourth-quarter growth was stronger than the 6.4 per cent forecast in a Reuters poll and held at the same pace as the third and second quarters. Weakening export growth was more than offset by strength in domestic consumption in a G20 economy that has seen a fourfold increase in GDP per capita in the past decade.
Full-year growth of 6.5 per cent was the strongest since 1996, another milestone after ratings agencies in recent months restored the country’s investment-grade credit rating for the first time since the Asian financial crisis.
Economists expect weakening exports to rein in growth this year to 6.1 per cent.
That would still be the third year in a row that growth has topped 6 per cent.
The central bank slashed its policy rate by 75 basis points in October and November to a record low of 6 per cent to shield the domestic economy from the euro area debt crisis.
At the time, some analysts reckoned the central bank had over-reacted given the economy wasn’t showing any major signs of stress, unlike some of its export-reliant neighbours.
Some economists argue the strong GDP figures mean expectations for a further rate cut on Thursday, when the central bank meets to review policy, are now overdone.
Inflationary tears?But even if the central bank keeps policy unchanged on Thursday, some economists worry record-low interest rates, strong domestic consumption and the president’s desire for the economy to achieve 7 per cent growth by 2014 could prove an incendiary combination.
Inflation has been the Achilles’ heel for policymakers in Indonesia, a sprawling archipelago where poor infrastructure adds to costs. Previous bouts of high inflation -- it reached more than 18 per cent in 2005 -- forced sudden rate rises and prompted foreign investors to sell off rupiah assets.
On the face of it, there seems little to worry about.
Current inflation of 3.65 per cent is the lowest in almost two years. But economists say when administered fuel prices and food prices are excluded, inflation is a more elevated 4.3 per cent. The government is also considering hiking subsidised fuel prices, which could result in higher inflation in the months ahead.
GDP figures showed that annual growth accelerated in the hotel, trade and restaurant sector to 10.2 per cent in the fourth quarter from 9.2 per cent in the previous quarter. Gross fixed capital formation, a measure of investment, picked up to growth of 11.5 per cent from 7.1 per cent.
Earlier data had shown foreign direct investment (FDI) surged 25 per cent in the fourth quarter, while commercial bank loan growth rose to 26 per cent in figures for November. GDP per capita grew to 30.8 million rupiah ($3,543) last year from 7.2 million rupiah in 2001, statistics bureau data shows.
New car sales in 2011 reached record levels of nearly 900,000, triple that of 2000, Mandiri Sekuritas figures show. As Indonesia has expanded, so has the spending power of many Indonesians, although 12 per cent of the population is poor.—Reuters