JAKARTA: Indonesia's economy grew 6.9 percent year-on-year in the fourth quarter of 2010, the strongest pace in six years, blowing past expectations and increasing the chances of steeper rate hikes in coming months to head off inflationary pressures, according to a Reuters report on Monday, Feb 7.
For 2010 as a whole, Southeast Asia's top economy expanded 6.1 percent, underscoring some expectations that Indonesia is in line for a coveted investment grade credit rating in the next year or so to place it alongside the so-called BRIC nations of Brazil, Russia, India and China.
Year-on-year growth in Q4 was well above even the most optimistic forecast of 6.5 percent in a Reuters poll and helps explain the central bank's concern about a buildup of inflationary pressure that prompted it to raise interest rates on Friday for the first time in nearly two years.
"The growth outlook remains robust. This will attract more investment into Indonesia. Inflation remains at the forefront of Bank Indonesia's policy concerns with back-to-back 7 percent or higher inflation," said Prakriti Sofat, an economist at Barclays in Singapore.
"In the next three to four months we expect up to a 75 basis points rise in interest rates," she said, a level in line with the average forecast for 2011 rate hikes in a Reuters poll.
Worries that the central bank was behind the curve in tackling inflation led to a sell-off in bonds and stocks in January, after the country was an investor darling in 2010, but the central bank's move to lift its policy rate by 25 basis points on Friday to 6.75 percent spurred renewed market gains.
After the GDP data, the stock market picked up from negative territory to gain 0.1 percent, led by top car seller Astra International , while the rupiah edged up to a 1-month high. Ten-year bond yields have pulled back sharply by more than 70 bps as investors hunted for bargains after the January sell off.
The fourth-quarter growth, driven by government spending, domestic consumption and investment, added to other figures showing economies in Southeast Asia grew strongly into the end of the year.
Singapore's gross domestic product rose 12.5 percent and the Philippines 7.1 percent from a year earlier. In Indonesia, car sales jumped 57 percent in 2010 to a record as an emerging middle class snapped up new Toyotas , among other models.
Private consumption growth slowed in the fourth quarter versus the third, but government expenditure and exports both accelerated. Wellian Wiranto, an economist with HSBC in Singapore, described Monday's GDP growth figure as "a wow number".
"Today's strong upside surprise in growth data means that Bank Indonesia should not be shy to continue brandishing its recently-adopted tightening stance. We see two more 25bp hikes in the coming months," he said in a research note.
Government spending in Indonesia usually picks up the fourth quarter as authorities rush to meet targets, with low spending earlier in 2010 leading to a cut in debt issuance. Falling government debt levels have spurred sovereign rating upgrades, but poor infrastructure remains a hurdle to future growth.
Total investment grew by 54 percent last year, with foreign direct investment rising 52 percent as firms -- particularly from Asia -- put money into plants to make goods from shoes to mining equipment, or to extract mineral resources. The statistics bureau said each percentage point rise in GDP growth adds over half a million new jobs.
Indonesia, the world's top exporter of thermal coal and tin and the biggest producer of palm oil, has benefited from the rise in many commodity prices. State miner Timah said on Monday tin sales fell 18 percent last year, but profits more than doubled as tin prices surged to record highs.- Reuters
For 2010 as a whole, Southeast Asia's top economy expanded 6.1 percent, underscoring some expectations that Indonesia is in line for a coveted investment grade credit rating in the next year or so to place it alongside the so-called BRIC nations of Brazil, Russia, India and China.
Year-on-year growth in Q4 was well above even the most optimistic forecast of 6.5 percent in a Reuters poll and helps explain the central bank's concern about a buildup of inflationary pressure that prompted it to raise interest rates on Friday for the first time in nearly two years.
"The growth outlook remains robust. This will attract more investment into Indonesia. Inflation remains at the forefront of Bank Indonesia's policy concerns with back-to-back 7 percent or higher inflation," said Prakriti Sofat, an economist at Barclays in Singapore.
"In the next three to four months we expect up to a 75 basis points rise in interest rates," she said, a level in line with the average forecast for 2011 rate hikes in a Reuters poll.
Worries that the central bank was behind the curve in tackling inflation led to a sell-off in bonds and stocks in January, after the country was an investor darling in 2010, but the central bank's move to lift its policy rate by 25 basis points on Friday to 6.75 percent spurred renewed market gains.
After the GDP data, the stock market picked up from negative territory to gain 0.1 percent, led by top car seller Astra International , while the rupiah edged up to a 1-month high. Ten-year bond yields have pulled back sharply by more than 70 bps as investors hunted for bargains after the January sell off.
The fourth-quarter growth, driven by government spending, domestic consumption and investment, added to other figures showing economies in Southeast Asia grew strongly into the end of the year.
Singapore's gross domestic product rose 12.5 percent and the Philippines 7.1 percent from a year earlier. In Indonesia, car sales jumped 57 percent in 2010 to a record as an emerging middle class snapped up new Toyotas , among other models.
Private consumption growth slowed in the fourth quarter versus the third, but government expenditure and exports both accelerated. Wellian Wiranto, an economist with HSBC in Singapore, described Monday's GDP growth figure as "a wow number".
"Today's strong upside surprise in growth data means that Bank Indonesia should not be shy to continue brandishing its recently-adopted tightening stance. We see two more 25bp hikes in the coming months," he said in a research note.
Government spending in Indonesia usually picks up the fourth quarter as authorities rush to meet targets, with low spending earlier in 2010 leading to a cut in debt issuance. Falling government debt levels have spurred sovereign rating upgrades, but poor infrastructure remains a hurdle to future growth.
Total investment grew by 54 percent last year, with foreign direct investment rising 52 percent as firms -- particularly from Asia -- put money into plants to make goods from shoes to mining equipment, or to extract mineral resources. The statistics bureau said each percentage point rise in GDP growth adds over half a million new jobs.
Indonesia, the world's top exporter of thermal coal and tin and the biggest producer of palm oil, has benefited from the rise in many commodity prices. State miner Timah said on Monday tin sales fell 18 percent last year, but profits more than doubled as tin prices surged to record highs.- Reuters
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