Indonesia’s strong GDP data prompts ‘resilient but uneven’ growth forecasts

Indonesia's stronger-than-anticipated economic growth in the second quarter has sparked forecasts of resilient but uneven expansion. Analysts cautioned that the latest figures also highlighted uneven sectoral performance and significant reliance on government spending. The Southeast Asian nation's economy surged by 5.29 percent year-on-year in the April-June period, slower than the 5.61 percent recorded in Q1 but above the 5.1 percent forecast by Reuters.

The Institute for Economic and Social Research at University Indonesia estimated growth at 4.8 percent in its report released on Tuesday, a day before the official data's release.

Mohammad Edy Mahmud, deputy for national accounts and statistical analysis at the statistics agency BPS, attributed the quarterly growth to manufacturing, agriculture, trade, construction, and mining. Manufacturing and household spending accounted for 63.73 percent of GDP, while government expenditure increased nearly 16 percent due to thirteenth-month salary bonuses and the President's free nutritious meals program.

The rupiah strengthened to 17,933 per US dollar following the GDP release, up from 18,027 per US dollar on the previous trading day.

Economists welcomed the growth but emphasized the uneven nature of the expansion. Josua Pardede, chief economist at Permata Bank, noted that forecasters underestimated the growth caused by government spending and fixed investment, with the main surprise being the strong household consumption. However, Pardede cautioned that the growth's quality was "resilient but uneven," as the fixed investment growth was largely driven by government-linked activities, with machinery and equipment investment growing only 1.32 percent.

The region's economy faces external pressures, particularly in trade and foreign exchange channels, with Vietnam outperforming Indonesia with an 8.39 percent growth rate in the second quarter.