Indonesia's fourth-quarter GDP growth weakest in three years, more rate cuts seen

JAKARTA (Reuters) - Indonesia’s economic growth slowed to its weakest pace in three years in the final quarter of 2019 as investment, spending and exports weakened despite government efforts to bolster Southeast Asia’s largest economy from a slowdown in global demand.

FILE PHOTO: General view of a business district during sunset in Jakarta, Indonesia, November 5, 2019. REUTERS/Willy Kurniawan/File Photo

Economists expect the central bank to further cut rates to shield the economy from the impact of the coronavirus outbreak in China, the country’s biggest trading partner and a major source of direct investment.

Indonesia’s economy expanded 4.97% on an annual basis in the October-December quarter, data from the statistics bureau showed on Wednesday, slower than expected in a Reuters poll.

For 2019, the economy grew 5.02%, close to the poll’s forecast but short of the government’s 5.3% target.

Slowing global trade amid the U.S.-China tariff dispute had hurt Indonesia’s important commodity exports, while national elections delayed investment decisions.

Household consumption, which accounts for more than half of Indonesia’s GDP also slowed, with sales of clothes, mobile phones, cars and motorbikes contracting, according to the statistics bureau.

Fakhrul Fulvian, economist at brokerage Trimegah Sekuritas, said slowing investment could signal a further downturn ahead.

“This makes for even more urgency for BI (Bank Indonesia) to cut rates further as soon as possible,” Fulvian said, predicting growth would not rebound before the second half.

Last year, BI cut its policy rate four times by a total of 100 basis points and eased lending rules to support growth.

Trinh Nguyen, Hong Kong-based senior economist with Natixis, said she expected a total of 50 bp-cuts this year.

Ahead of the data, BI Governor Perry Warjiyo said at a seminar the central bank will use all tools to further support growth this year.

The governor forecast a GDP growth rate of 5.3% in 2020, in line with the government’s target.

The rupiah IDR= barely moved, trading at 13,715 per dollar before the midday break.

President Joko Widodo, who began a second term in office in October, has made lifting GDP growth and creating more jobs in the world’s fourth most populous country a priority.

He plans to hand companies tax cuts and relax rigid labor rules, through the so-called “omnibus” bills, aimed at speeding up the process of revising many, unrelated regulations at once.

Josua Pardede, an economist at Bank Permata, warned the economy may remain under pressure in the first half, though the omnibus bills, if passed, could start to influence investment decisions in the second half.

“Investment growth would still be low given that global uncertainty continues and also with the coronavirus putting pressure on the Chinese economy,” Pardede said, giving a 2020 growth forecast of 5.0%-5.1%.

Authorities have expressed confidence that travel curbs and capital outflows stemming from the virus outbreak that has killed nearly 500 people and infected more than 24,000 others, mostly in China, will not seriously dent Indonesia’s economy.

Chinese tourists represent some 13% of total visitors to Indonesia and the country is also the biggest buyer of Indonesian goods, with any deceleration in China’s growth likely to affect commodity prices.

“Under conditions like this, I’m sure the economy can still grow 5.1% because the government will look to boost domestic sources of growth, while BI can still cut rates,” said Winang Budoyo, economist at Bank Tabungan Negara.

Additional reporting by Jessica Damiana; Writing by Gayatri Suroyo; Editing by Jacqueline Wong