Indonesian Economy Looses Steam

Since the third quarter of 2012 Indonesia's economic growth has been slowing down. While rising inflation and higher borrowing cost are hampering consumer spending, lower commodity prices and recently introduced export tax on raw minerals is hurting capital investment.
Joana Taborda | 8/15/2013 2:27:38 PM
In Q2 of 2013, the GDP slowed for the fourth consecutive quarter to 5.81 percent yoy, as the increase in government spending was not enough to offset slowing private consumption and investment. In June, exports decreased 4.5 percent yoy, fifteenth consecutive month of annual decline.
Imports have been slowing down since the beginning of the year and in June it shrank 6.8 percent yoy. In the same period, trade deficit narrowed to 846.6 million USD, from 1286 million USD a year earlier.
Although in Q3 of 2013, business confidence slightly improved to 105.95, due to higher sales' expectations in construction, hotels and restaurants, confidence among entrepreneurs is still well below pre-2009 levels.
Since the beginning of the year, Indonesian rupiah has depreciated 6.7 percent against the U.S. dollar due to high imports and rising current account deficit. Yet, if the depreciation persists, further foreign capital outflows are likely to occur.
In June, consumer confidence increased to 7-month high, due to better job expectations. Yet, retail sales have been weak since the beginning of the year and in May eased to 8.6 percent yoy, down from 10 percent recorded in April.
In July, inflation accelerated to 8.61 percent, the highest level in more than four years due to higher food and transport prices.  On August 15th, the Bank Indonesia left the interest rate unchanged  at 6.5 percent.