JAKARTA:'' Indonesia's economy grew a surprisingly slow 5.82 percent year-on-year in the third quarter, data showed on Friday, Nov 5, with the central bank and analysts pinning the blame on rain that hit production in mining and agriculture.
Analysts said the data made it even more likely that the central bank will keep its policy rate on hold at a record low 6.5 percent well into 2011 as it tries to avoid encouraging an even bigger flow of investment capital to its markets.
Most Asian economies experienced strong growth in the first half of the year as they rebounded from the global recession, but like Indonesia, China, South Korea and Singapore reported a slowdown in the third quarter.
Indeed, Indonesia's 5.8 percent rise in GDP marked the first slowdown in the annual pace of expansion in Southeast Asia's biggest economy following four successive quarters of quickening growth.
"That is really low," said Helmi Arman, economist at Bank Danamon in Jakarta. "The risk to achieving the 6.1 percent figure for full-year growth is definitely to the downside now."
The central bank stuck to its full-year GDP growth forecast of 6.1 percent, which is in line with most analyst expectations.
Quarter-on-quarter GDP growth was 3.45 percent in the third quarter, the country's statistics bureau said.
Wellian Wiranto, Asian economist at HSBC in Singapore, said in a research note after the data that Indonesia's economic fundamentals remained strong despite the blip.
"The bulwark of consumption continues to be robust, complementing a further pick-up in investments. Even the usually lackluster government spending is adding to growth now," he said.
"Why the disappointing headline growth then? Rain. The same culprit that pushed up prices a few months ago had also hurt growth -- most evidently in the agricultural and mining sectors."
Indonesia's rainy season falls in the third quarter, and this year rainfall was particularly high, partly due to the impact of the La Nina weather phenomenon. Such heavy rains can damage crops and make mining activity difficult.
Trade was also weaker, reflecting the less robust external environment. Annual export-import growth slowed in the third quarter from the previous quarter, the data from the statistics bureau showed. Other expenditures including houshold consumption and government spending picked up.
RATES LIKELY TO STAY ON HOLD
At its monthly policy meeting on Thursday, Bank Indonesia left rates unchanged and said the main concern was surging inflows of foreign capital.
With recent inflation data benign and on course to be within the central bank's end-year target range, and the central bank anxious to avoid attracting too much foreign capital by widening interest rate differentials unduly, most analysts expect no rate rise until the second quarter of 2011 at the earliest.
Of 13 economists polled by Reuters, none had forecast third-quarter GDP growth of below 6.1 percent. The central bank had forecast growth of 6.3 percent in the quarter.
"Q3 GDP came in softer than expectations -- not surprising given that H2 headlines should moderate on higher base. Growth still held up on the quarter," said Joanna Tan, economist at Forecast in Singapore.
"The key downside risks to the economy will stem from the slowdown in the global recovery and the influx of speculative capital where a turn in risk appetites could spur an exodus of funds from the higher beta Indonesian assets."
Despite the surprisingly low figure, Indonesian markets showed little reaction to the data.
The stock market extended modest gains after the announcement and was up 0.66 percent at the closing of the first session at 0500 GMT, near a record high. The rupiah was hovering around 8,897, the same level as before the data was released.
Several analysts said that despite the unexpectedly weak data, growth was still on course to be around 6-6.2 percent in 2010.
"This is below expectations, but still leaves growth to be approximately 6 percent for 2010 at the year end," said David Cohen, economist at Action Economics in Singapore.
"It is a little disappointing, but should still leave investors feeling comfortable for the future outlook."
Economic growth in Indonesia rarely manages to stay above 6 percent for long, with economists saying poor infrastructure is a key drag on the economy.
Analysts said the data made it even more likely that the central bank will keep its policy rate on hold at a record low 6.5 percent well into 2011 as it tries to avoid encouraging an even bigger flow of investment capital to its markets.
Most Asian economies experienced strong growth in the first half of the year as they rebounded from the global recession, but like Indonesia, China, South Korea and Singapore reported a slowdown in the third quarter.
Indeed, Indonesia's 5.8 percent rise in GDP marked the first slowdown in the annual pace of expansion in Southeast Asia's biggest economy following four successive quarters of quickening growth.
"That is really low," said Helmi Arman, economist at Bank Danamon in Jakarta. "The risk to achieving the 6.1 percent figure for full-year growth is definitely to the downside now."
The central bank stuck to its full-year GDP growth forecast of 6.1 percent, which is in line with most analyst expectations.
Quarter-on-quarter GDP growth was 3.45 percent in the third quarter, the country's statistics bureau said.
Wellian Wiranto, Asian economist at HSBC in Singapore, said in a research note after the data that Indonesia's economic fundamentals remained strong despite the blip.
"The bulwark of consumption continues to be robust, complementing a further pick-up in investments. Even the usually lackluster government spending is adding to growth now," he said.
"Why the disappointing headline growth then? Rain. The same culprit that pushed up prices a few months ago had also hurt growth -- most evidently in the agricultural and mining sectors."
Indonesia's rainy season falls in the third quarter, and this year rainfall was particularly high, partly due to the impact of the La Nina weather phenomenon. Such heavy rains can damage crops and make mining activity difficult.
Trade was also weaker, reflecting the less robust external environment. Annual export-import growth slowed in the third quarter from the previous quarter, the data from the statistics bureau showed. Other expenditures including houshold consumption and government spending picked up.
RATES LIKELY TO STAY ON HOLD
At its monthly policy meeting on Thursday, Bank Indonesia left rates unchanged and said the main concern was surging inflows of foreign capital.
With recent inflation data benign and on course to be within the central bank's end-year target range, and the central bank anxious to avoid attracting too much foreign capital by widening interest rate differentials unduly, most analysts expect no rate rise until the second quarter of 2011 at the earliest.
Of 13 economists polled by Reuters, none had forecast third-quarter GDP growth of below 6.1 percent. The central bank had forecast growth of 6.3 percent in the quarter.
"Q3 GDP came in softer than expectations -- not surprising given that H2 headlines should moderate on higher base. Growth still held up on the quarter," said Joanna Tan, economist at Forecast in Singapore.
"The key downside risks to the economy will stem from the slowdown in the global recovery and the influx of speculative capital where a turn in risk appetites could spur an exodus of funds from the higher beta Indonesian assets."
Despite the surprisingly low figure, Indonesian markets showed little reaction to the data.
The stock market extended modest gains after the announcement and was up 0.66 percent at the closing of the first session at 0500 GMT, near a record high. The rupiah was hovering around 8,897, the same level as before the data was released.
Several analysts said that despite the unexpectedly weak data, growth was still on course to be around 6-6.2 percent in 2010.
"This is below expectations, but still leaves growth to be approximately 6 percent for 2010 at the year end," said David Cohen, economist at Action Economics in Singapore.
"It is a little disappointing, but should still leave investors feeling comfortable for the future outlook."
Economic growth in Indonesia rarely manages to stay above 6 percent for long, with economists saying poor infrastructure is a key drag on the economy.
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