A woman picks a pair of footwear for her child during a sale at the Central Park shopping mall in Jakarta. Indonesia’s economy grew at its weakest pace in nearly four years in the third quarter, throttled by weak exports and slowing consumption as higher fuel prices bite.

Reuters/Jakarta


Indonesia’s economy grew at its slowest in nearly four years in the third quarter, as weak exports risk leaving its trade balance in deficit and the rupiah vulnerable to further falls.
Growth is expected to ease further in the coming quarters as the effects of higher interest rates and fuel costs feed through the economy.
Southeast Asia’s largest economy is running large trade and current-account deficits this year, which have made it a target of portfolio investors shifting funds out of emerging markets and knocked the rupiah to 4-1/2-year lows.
Gross domestic product in the July-September quarter grew 5.62%, data from the statistics bureau showed yesterday. The pace matched estimates in a Reuters poll and compared with 5.81% growth in April-June.
“We very much doubt GDP growth has hit bottom yet — in fact we would be surprised if it did for another year or so, by which time the year-on-year rate is likely to have slipped below 5%,” Robert Prior-Wandesforde, director of Asian economics research at Credit Suisse, said in a report.
“The main reason for the slowdown so far has been the end of the commodity super-cycle, which has hit mining profits and investment.”
The Reuters poll had projected growth of 5.6% from a year earlier, and 2.93% against the prior quarter.
Some analysts noted that the deceleration in growth stemmed mainly from the business sector while private consumption, which influences imports, was much stronger than expected.
Domestic consumption, the main growth engine in the G20 economy, grew 5.48% year-on-year and was faster than the 5.06% clip the previous quarter, data showed.
“While we continue to look for BI to stand pat when it meets next on Tuesday, the central bank needs to more closely scrutinise if the tightening since June is having the desired dampening impact on household activity,” Su Sian Lim, Asean economist at HSBC, said in a research report.
“For the current account deficit to narrow, a broader domestic slowdown is necessary.”
Indonesia is expected to post an overall trade deficit of $6-8bn in 2013, widening from $1.63bn deficit last year, a factor that will continue to hurt its exchange rate. The rupiah fell as much as 0.7% to 11,420 per dollar in yesterday’s trade.
While the pressure on the rupiah has eased somewhat as the Federal Reserve delayed winding down monetary stimulus, a renewed attack on Asia’s worst performing currency could resume with speculation over the timing of US tapering.
Weak exports hampered by a tentative global recovery will make it harder for Indonesian policymakers to keep the country’s deficits at a sustainable level as growth slows.
“We (initially) expected full-year growth of 5.8%. But with the downside risk, we are considering reviewing our forecast. There will be a further slowdown in the final quarter,” said Eric A Sugandi, economist at Standard Chartered in Jakarta.
Bank Indonesia’s 2013 GDP target is 5.5-5.9%.