Indonesia’s gross domestic product growth is expected to further slow in the second quarter this year as the effect of falling exports overwhelms buoyant domestic demand, a Reuters poll showed on Friday.
GDP is seen expanding 6.1 percent from a year ago, the slowest growth since 5.8 percent in the third quarter of 2010, supported by domestic consumption and investment, according to the poll.
On a quarterly basis, GDP growth was forecast at 2.5 percent, although the number is not adjusted for seasonal variations.
“Overall domestic demand is still strong, what’s dragging down growth are exports… It’s more due to external factors,” said Aldian Taloputra, an economist at Mandiri Sekuritas.
“In the third and fourth quarters, we expect exports to recover, so we’re still optimistic of full-year growth at 6.2 percent.”
In the first quarter, Indonesia’s GDP grew 6.3 percent year-on-year. The central bank has already lowered its 2012 growth forecast to 6.2 percent from 6.5 percent previously, as exports dropped.
Exports account for roughly 20 percent of GDP in Southeast Asia’s largest economy and domestic consumption contributes 55 percent.
In June, exports were down 16.44 percent from a year ago, widening the trade deficit to a record high of $1.33 billion.
This could add to investor worries about the rupiah currency.
However, foreign direct investment rose 30.2 percent between April and June, showing the G20 member remains a magnet in a troubled global economy. Car sales were also growing last quarter, indicating domestic consumption remained strong.
These contrasting figures will likely leave the central bank with no option but to keep its benchmark rate steady at a record low of 5.75 percent for the whole year, while using other measures to stabilise the rupiah, economists said.
Bank Indonesia holds its next policy meeting on Thursday.
Bank Indonesia would have room to hold rates this year as inflation is likely to stay within the bank’s target of 3.5 to 5.5 percent until end of the year, economists have said. In July, inflation only nudged up slightly to 4.56 percent, despite sellers jacking up food prices during the Ramadan fasting month.
HSBC’s manufacturing index (PMI) also read that manufacturers still had the capacity to fulfill growing orders, which could explain why inflation has remained stable. The PMI rose to a nine-month high of 51.4 in July.