February 5, 2016 / 6:10 AM / 4 years ago

UPDATE 2-Indonesia economy gains speed in Q4, outlook brightens

* 2015 GDP +4.79 pct y/y, slightly better than expectation

* Q4 GDP +5.04 pct y/y, vs +4.74 pct in Q3

* Q4 GDP -1.83 pct q/q, vs +3.36 pct Q3 (Adds more detail on govt spending and policy context)

By Nilufar Rizki and Gayatri Suroyo

JAKARTA, Feb 5 (Reuters) - Indonesia’s economy picked up speed in the fourth quarter thanks to higher public spending, suggesting President Joko Widodo is finally starting to unclog much needed infrastructure investment and spur growth in the year ahead.

Southeast Asia’s largest economy grew 5.04 percent in October-December from a year earlier, supported by government spending, gross domestic product data from the statistics bureau showed on Friday.

That was above the 4.74 percent in the third quarter, but a collapse in prices for Indonesia’s main commodities and cooling growth in major trading partner China drove full-year growth to 4.79 percent - the slowest since the global financial crisis.

Analysts say growth in latest quarter - the fastest in a year and ahead of expectations - suggested the worst may be over, especially as spending on critical infrastructure projects looks set to pick up.

“The government appears to have found better footing by now and infrastructure projects would start to help momentum more forcefully,” said Wellian Wiranto, an economist with OCBC in Singapore.”

After disappointing investors with the slow pace of reforms, Widodo rolled out a series of stimulus measures in September last year in an attempt to make investment the main driver of growth.

He offered firms tax break of up to 20 years, among other incentives.

Widodo’s cabinet, which was reshuffled in August after ministers took too long to speed up public investment, got to work quickly. Capital spending more than doubled to almost $10 billion in the last quarter of the year, compared with the entire 9-month period to end-September, data from the Finance Ministry shows.

Indonesia’s stock market rose more than 2 percent after the GDP data, while the rupiah strengthened 0.3 percent.

STIMULUS

To aid growth, Indonesia’s central bank cut its benchmark interest rate for the first time in 11 months in January, by 25 basis points to 7.25 percent.

Bank Indonesia, which next meets to decide policy on Feb. 17-18, has said it will review the need for further easing.

Banking on better government spending and investment, many economists are expecting growth to improve steadily this year after a slowdown for five straight years.

Construction companies, including state-owned Wijaya Karya and Waskita Karya, are bullish about business, with big companies expecting a large increase in capital expenditure this year.

As part of efforts to attract investment, the government is expected to open more sectors of the economy to foreigners.

Nonetheless, few expect a rapid acceleration in Indonesia’s growth due to persistent investment bottlenecks as well as external headwinds including low commodity prices, a tottering Chinese economy and generally slack global demand.

The central bank sees only a moderate improvement, forecasting growth at 5.2 percent in 2016, and a Reuters poll taken before the data had a median forecast of 5.1 percent growth.

“Private consumption and public investment will be the keys to the 2016 outlook and if neither of these enter into a durable recovery then the probability of Indonesia moving sustainably above what we perceive to be a 4.5 percent-5.0 percent growth funk still seem rather low at this time,” Glenn Maguire, chief economist at ANZ said. ($1 = 13,595 rupiah) (Additional reporting by Nicholas Owen, Fransiska Nangoy and Hidayat Setiaji in JAKARTA, Jongwoo Cheon in SINGAPORE; Editing by Shri Navaratnam)

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