November 8, 2022
JAKARTA – Amid concerns over global economic activity and reduced cross-border trade, Indonesia has posted another solid GDP reading, setting the country apart from many others ahead of the Group of Twenty (G20) Summit to be hosted in Bali this month.
Indonesia’s GDP was up 5.72 percent year-on-year (yoy) in the third quarter, Statistics Indonesia reported in an online press briefing on Monday.
That exceeds the 5.44 percent yoy growth rate recorded in the second quarter and 5.01 percent yoy logged in the first. The domestic economy is benefiting this year from relaxed pandemic restrictions at home and higher prices for key export commodities in global markets.
The figures presented on Monday are lower than forecasts from state-owned Bank Mandiri and financial research firm Moody’s Analytics, which had predicted third-quarter GDP growth of 6 percent yoy and 6.01 percent yoy, respectively.
When compared to the second quarter, Indonesia’s GDP was up 1.81 percent, which is lower than Bank Mandiri’s forecast of 2.09 percent and marks a slowdown from quarterly growth of 3.72 percent registered in the second quarter.
Other economic indicators also pointed up in the third quarter, such as a trade surplus that increased 12.58 percent yoy, retail sales that rose 5.52 percent yoy and income tax receipts that were up 26.10 percent yoy.
“The pattern of the preceding years shows that [quarterly] growth in the third quarter is always slower than in the second quarter […] because of seasonal factors,” BPS head Margo Yuwono said on Monday.
Indonesia’s latest GDP report comes after several other major economies also posted improved growth for the same quarter.
The United States economy, despite the hawkish monetary policy pursued by the Federal Reserve, grew 2.6 percent yoy in the third quarter, after negative figures in the two previous quarters, while the Chinese economy grew by 3.9 percent yoy, significantly higher than the 0.4 percent in the second quarter.
International institutions, including the International Monetary Fund and the World Bank, have slashed estimates for the global economy in 2023 due to rising inflationary pressure that has compelled central banks around the world to hike interest rates.
“We are an open economy, hence very dependent on major trading partners,” Margo noted.
Household spending, which currently accounts for 50.38 percent of the economy, was up 5.39 percent yoy in the third quarter thanks to greater mobility and increased spending on nonessential goods by upper- and middle-income bracket consumers. That is slower than the 5.51 percent yoy increase in the second quarter.
Investment, also known as gross fixed capital formation, was a drag on overall GDP growth as it was up just 4.96 percent yoy. That said, all subcomponents did see continued growth, especially investment in capital goods other than buildings.
International trade contributed to economic annual growth due to stellar exports of coal, processed oil and natural gas, which grew by 21.64 percent yoy. However, imports outpaced exports with growth of 22.98 percent yoy, driven by increased industrial imports of capital goods and raw materials.
Government spending, meanwhile, continued to decline, dropping 2.88 percent yoy due to lower state budget spending on goods and services.
Transportation and warehousing remained the sector logging the highest growth with 25.81 percent yoy, followed by hospitality services with 17.83 percent yoy.
Manufacturing sector production, meanwhile, grew 4.83 percent yoy, while mining expanded only 3.22 percent yoy and agricultural output rose at a lackluster 1.65 percent yoy.
“[Growth in the hospitality sector] was driven by consumers’ higher mobility,” Margo explained.
In a press conference on Monday, Coordinating Economic Minister Airlangga Hartarto said Indonesia’s economic growth was “impressive” thanks to a much-improved pandemic health situation as the prerequisite for increased mobility, when compared to last year.
Airlangga also heads the national economic recovery and COVID-19 response committee (KPCPEN), which oversaw the government’s efforts to curb the spread of the delta variant of COVID-19 around the third quarter of last year.
“The future challenges are the lower commodity prices and slowdown in global demand,” Airlangga noted on Nov. 5.
Speaking at the same event on Monday, Industry Minister Agus Gumiwang said the manufacturing sector was benefiting from the transportation and electronics segments due to financial incentives for car purchases and requirements to include local components (P3DN).
The food and beverage industry performance, however, was below the minister’s expectations due to reduced overseas demand, while pharmaceutical and furniture industries were experiencing negative growth due to lower demand from Europe.
“We have a mitigation program for the lower demand, such as new export markets in Latin America, Africa, the Middle East and Asia,” Agus said.
Finance Minister Sri Mulyani had targeted GDP growth above 5.5 percent yoy in the third quarter but expressed worries about the fourth quarter amid a worsening global economic environment.
“I said it this way, [and some parties] accused me of fearmongering, but actually I am not. I just want to say that the risks are real, and because of that, we need to be on alert,” the finance chief said on Oct. 26.
Bank Mandiri economist Faisal Rachman attributed the slowdown in household spending growth to rising food prices.
“So, if volatile food-price inflation could be managed until the end of December, there is still a chance to jumpstart household spending growth, especially given the seasonal factor of New Year’s Eve,” Faisal told The Jakarta Post on Monday.