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Indonesia - The Jakarta Post - Growth Hit Hard by Global Slowdown Print E-mail

Growth Hit Hard by Global Slowdown

Aditya Suharmoko, The Jakarta Post, Jakarta

The economy grew the slowest in two years in the fourth quarter of 2008 as the global economic slowdown slashed commodity prices and export demand.

The Central Statistics Agency (BPS) reported on Monday that the economy expanded 5.2 percent in the fourth quarter of 2008 from a year earlier, slower than the annualized growth rate of 6.4 percent booked in the previous quarter.

Worse still, on a quarterly basis, the economy contracted by 3.6 percent in quarter four from the previous quarter, although BPS head Rusman Heriawan added that a similar contraction had occurred in the same period in the last two years.

"This was not surprising as the economy usually contracts in the fourth quarter compared to the third quarter, as industrial output slows and harvest time ends. But the crisis made the contraction (in 2008's fourth quarter) deeper."

Indonesia's exports have been falling victim to the global economic downturn, which started to hit in the last three to four months of 2008. Economists also predicted that investment - another driver of economic growth - would start to be harder to come by this year amidst a worldwide liquidity shortage, tending to slow growth down.

However, BPS echoed government optimism that economic growth this year would not fall below 4.5 percent, saying that despite the fourth quarter contraction, the economy expanded by a respectable 6.1 percent last year, while many countries suffered from recession.

"Indonesia was far better off than other countries that had stronger trade relations with the US, Japan, and Western European countries. Even Malaysia and Singapore had a deeper economic fall," said Rusman.

With export and foreign investment set to be hit hard by the deepening global conditions, Indonesia's economic growth would partly rely on how effectively the government implemented budget allocations.

"The economy will depend on effective government spending and private consumption," Rusman said.

Of last years' 6.1 percent economic growth, government spending contributed 0.8 percent to the growth in gross domestic product, and private consumption 3.1 percent.

Danareksa Research Institute chief researcher Purbaya Yudhi Sadewa said that if the government repeated a similar spending pattern to that of last year, then the economy "would be in trouble".

"Historically, government spending has never been significant. But now the government should push spending to stimulate the economy. "

"All this time, the economy has been crippled. The fiscal side is not contributing as much as it should. The economy grew mainly because of the monetary side; as interest rates went down, consumption and investment went up," he said.

While expecting the economy to expand at 4.8 percent this year, Purbaya said that if the government failed in stimulating the economy, Indonesia "might see a contraction in the third quarter this year"

(Source: The Jakarta Post, 2009)

 

 
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