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Indonesia GDP grew more than 6 pct

05/11/08 10:15
Indonesia GDP grew more than 6 pct in Q1, pace to moderate in next 3 quarters

Jakarta (ANTARA News) - Indonesia's gross domestic product (GDP) probably grew more than 6 percent in the first quarter from a year ago due to robust domestic consumption and exports, 10 economists polled by Thomson Financial said.

On an annual basis, first-quarter GDP growth is seen at 6.11 percent to 6.46 percent.

Compared to the fourth quarter, GDP probably grew 1.7 percent to 2.32 percent, they said.

But the pace of growth is expected to slow in the succeeding three quarters due to rising inflation and interest rates and slowing external demand for Indonesian exports.

Consumer spending will also decline if the government hikes the prices of non-subsidized fuel, they said.

In the first quarter of 2007, GDP grew at an annual 6.1 percent, while in the fourth quarter the economy grew 6.25 percent.

The Central Bureau of Statistics is tentatively scheduled to announce the GDP data on May 15.

Robust consumption, exports

"Don't worry about the first quarter. Many listed companies reported strong first-quarter earnings, meaning the the economy should have performed well," said Damhuri Nasution, an economist at Danareksa Research Institute.

Nasution gave the highest growth projection of 6.46 percent.

Juniman, a senior economist at Bank Internasional Indonesia (BII), agrees with Nasution's reading about the first quarter.

He said car and motorcycle sales clearly showed that domestic consumption was robust in the period while trade data also showed exports were strong.

He said a low interest rate environment helped boost domestic consumption in the quarter.

The central bank kept its key interest rate flat at 8.0 percent during the quarter whereas in the first quarter of last year, the key rate ranged from 9 percent to 10 percent.

Juniman said he expects private consumption, which accounts for nearly 60 percent of GDP, to have grown 5.09 percent in the first quarter.

A number of indicators support this projection. Nationwide car sales in the first quarter rose 61 percent to 135,607 vehicles, while motorcycle sales jumped 37 percent to 1.44 million.

Nationwide cement consumption also rose 16.8 percent in the first quarter 8.78 million tons, suggesting that infrastructure and construction activities were growing fast.

Data from the statistics bureau also showed that exports in the first quarter rose 31.4 percent from a yea earlier to $33.62 billion, with oil and gas exports surging 62 percent to $7.38 billion.

Apart from the oil price spike, Indonesia also benefited from higher commodity prices, including prices of coal and crude palm oil (CPO).

In the first quarter, CPO exports, the biggest among Indonesia's non-oil and gas export commodities, surged 170 percent from a year ago to $4.49

Indonesia's non-oil and gas exports to most large trading partners also continued to grow in the first quarter.

Exports to the United States rose to $3.0 billion from $2.66 billion a year ago, while non-oil and gas exports to China jumped to $2.22 billion from $1.47 billion.

Juniman said first-quarter GDP probably grew 6.13 percent year-on-year, but the growth pace may slow to 6.0 percent in the second quarter, then to 5.9 percent in the third and fourth quarters.

"Exports have been better than the previous two quarters on stronger commodity prices, and domestic consumption was also quite strong," said Gundy Cahyadi of Ideaglobal Ltd.

Growth pace to decelerate

David Cohen, chief economist at Action Economics, is forecasting GDP growth of 6.3 percent for the first quarter.

"Exports continued strong in the first quarter though looking ahead, they are expected to show moderating growth on a slowdown in global demand.

"Together with the anticipated drag from further interest rate increases to combat the pick-up in inflation, we see GDP growth moderating to 5.3 percent year-on-year for the full year," Cohen said.

On Tuesday, Bank Indonesia hiked the BI rate by 25 basis points to 8.25 percent as it anticipates that high inflation will persist in the coming months. It was the first rate hike in more than two years.

Analysts are now projecting the BI rate will reach 9.0 percent by the year-end.

Inflationary pressure will also come from the government's plan to hike the prices of subsidized fuels in June, likely by an average of about 30 percent.

"The big question is whether or not there will be a second fuel price hike late this year. Let's say what happens if oil breaks $140 a barrel?" BII's Juniman said.

Juniman expects the growth pace to slow to 6.0 percent in the second quarter and to 5.9 percent in the third and fourth quarters.

Eric Sugandi of Standard Chartered is also projecting growth to moderate starting in the second quarter. From an expected 6.3 percent expansion in the first quarter, Sugandi sees growth slowing slightly to 6.2 percent in the second quarter, and to 5.8 percent in the third and fourth quarters. (*)