Quick Look:
- Indonesia’s Q1 GDP grew 5.11% year-on-year, surpassing forecasts.
- Key drivers are government spending (20%), household spending (4.91%), and investment (3.79%).
- Experts predict varied growth rates, from 4.5% to 5.2%.
- Public spending grew 20%, and household consumption accounted for 54.93% of GDP.
- Challenges include high interest rates, lower commodity prices, and global growth.
Indonesia’s economy displayed robust growth in the first quarter of 2024, with GDP expanding by 5.11% year-on-year, outperforming economists’ forecasts. This performance, alongside a contraction of 0.83% quarter-on-quarter, and the GDP stood at Rp 3,112.9 trillion at constant prices and Rp 5,288.3 trillion at current prices.
Economic analysts had anticipated a slightly lower growth rate. However, the recent data points to significant government and household spending contributions and robust investment activity. Government spending surged by an impressive 20%, household spending grew by 4.91%, and investments expanded by 3.79%. Major sectors that buoyed the economy included processing, trade, agriculture, construction, mining, and quarrying.
Government Spending Surges 20%, Boosts Growth
While the Q1 2024 growth exceeded the previous quarter’s growth of 5.04%, it fell just shy of the 5.12% achieved in Q1 2014. Notably, the government has projected a full-year growth rate of 5.2%. Numbers align with estimates from economists like Radhika Rao of DBS Bank and Irman Faiz of Bank Danamon, predicting 5% growth. However, Gareth Leather of Capital Economics forecasted a more conservative 4.5% growth. He cited concerns about high interest rates, lower commodity prices, and below-trend global growth impacting demand.
Household Spending Grows 4.91%, Investments Up 3.79%
Several significant events and challenges currently influence Indonesia’s economic landscape. The country experienced increases in election-related and household spending during the first quarter, bolstering economic activity. However, falling commodity exports have had a negative impact, and the rupiah’s recent recovery of 0.4% reflects underlying global market volatility.
Public spending in Q1 grew by 20%, reinforcing economic activity, while welfare programmes helped the poor cope with high food prices. Household consumption, contributing 54.93% to GDP, and gross fixed capital formation, contributing 29.31%, were key growth drivers.
Indonesia’s Q1 Growth at 5.11%, Just Below 2014’s 5.12%
Experts and officials have offered various perspectives on Indonesia’s economic prospects. Gareth Leather from Capital Economics pointed out that the country might face challenges due to high interest rates and weaker demand. He believes the economy may struggle in the coming quarters due to lower commodity prices and slower global growth.
In contrast, Radhika Rao from DBS Bank has a more positive outlook, suggesting that strong growth will enable Bank Indonesia (BI) to focus on price and currency stability. Meanwhile, Finance Minister Sri Mulyani reiterated the government’s commitment to economic stability. Further saying that they would continue using the state budget to support economic growth and job creation.
Varied Growth Forecasts: 4.5% to 5.2% for 2024
Irman Faiz from Bank Danamon cautioned about potential obstacles shortly. He observed that the domestic economy might encounter difficulties due to prolonged high interest rates, which could eventually dampen both global and domestic demand. On the other hand, Deputy Minister of Finance Suahasil Nazara expressed a more positive outlook. He indicated that a growth rate of 5.11% is quite high and provides a solid foundation for Indonesia’s economic expansion in 2024. Amalia Adininggar Widyasanti, Acting Head of BPS, also emphasized this point, remarking that the economic growth recorded in the first quarter of 2024 is the highest since 2015.
Indonesia’s economy has shown resilience in various challenges, with Q1 2024 GDP growth surpassing forecasts. While the future remains uncertain, the government’s focus on maintaining economic stability and strong household consumption and investment could help the nation navigate potential headwinds.
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