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Indonesia Q3 GDP growth is lowest in over 2 years

Indonesia’s economic growth has fallen to its lowest in over two years, matching extended forecasts, data showed on Tuesday, suggesting further monetary and fiscal support to fuel demand knocked down by a global slowdown in the coming months.

In the three months ended September, the gross domestic product (GDP) grew 5.02% from the quarter of August, the lowest rate since the second quarter of 2017, the statistics office announced.

The result is similar to the expected growth of 5.01 per cent in a Reuters poll relative to the increase of 5.05 per cent in the second quarter.

While Indonesia –the largest economy in Southeast Asia –relies more on domestic demand, its growth has also been hurt by slowing global trade as the US-China tariff dispute has shattered its exports. Which, in effect, dented consumer sentiment and household spending as a whole.

Several analysts said the data showed a need for increased fiscal and monetary stimuli.

“We think policymakers will want to use all practicable instruments at hand to support growth,” said Bank Danamon economist Wisnu Wardana, adding that all of the economy’s “efficient engines” have decelerated.

The fiscal policy imperatives would be under review provided that the central bank had already cut prices, he added.

Bank Indonesia (BI) has been cutting interest rates four times since July by a total of 100 basis points and is expected to ease again in the months ahead.

ANZ analysts said while the data backed their expectations of further monetary easing, GDP growth was likely to remain at about 5 per cent without a commodity price bounce or global growth.

After the information from 14,020 a dollar to 14,005 by 0600 GMT, the rupiah signed up marginally. Before the midday break, the key stock index rose to 6,219, 6,201 ahead of the announcement.

Indonesia’s President Widodo

President Joko Widodo, who won re-election in April promising more opportunities for investment, is under pressure to avoid a sharp downturn.

Widodo, though, who alerted his cabinet members of the dangers of a global recession, has little headroom to open the fiscal spigot as weak corporate earnings and the more significant decline have hurt government revenue.

Growth in household consumption, which accounts for more than half of Indonesia’s GDP, fell slightly from 5.2% to 5% in the third quarter. However, public spending and investment slowed down.

Exports have been flat while imports have plummeted.

Widodo reiterated his ambitious plans to make Indonesia one of the world’s top five economies by 2045 with a GDP worth US$ 7 trillion at its inauguration last month.

“To do that, an investment must play a much bigger role. Data suggests a long way to go, with the contribution to growth at its lowest in three years,” OCBC economist Wellian Wiranto said.

In August, Finance Minister Sri Mulyani Indrawati narrowed the forecast for GDP growth in 2019 to 5.08 per cent compared to a goal of 5.3 per cent, indicating lower expectations.

On Monday, Indrawati said that owing to tax constraints; the fiscal deficit would be permitted to expand to 2% of GDP this year, up from 1.84 per cent initially planned.

BI Governor Perry Warjiyo has highlighted the scope for making policy more accommodative, while a Reuters poll conducted a further 25-bp rate cut by the end of the first half of 2020 ahead of BI’s last meeting on October 24.

Following the results, Nicholas Mapa, senior economist at ING, said the central bank is expected to “reserve options for further easing if growth momentum sags further.” The government’s objective is to raise GDP growth to 5.3 per cent by 2020, and aim some economists say it is too ambitious.

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