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Indonesia’s Q3 GDP growth slows more than expected, Q4 seen stronger -Breaking

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Gayatri Sroyo and Fransiska Nagy

JAKARTA (Reuters – Indonesian economic growth slowed in the third quarter due to COVID-19 restrictions. Recent data indicates that however, growth is likely to pick up in the next quarter.

Statistics Indonesia data show that Southeast Asia’s largest economy expanded by 3.51% during the quarter ending July-September last year. That is below its previous quarter’s 7.77% expansion.

Reuters analysts polled expected slower growth at 3.76% while officials in government had forecast 4.5%.

After rising 0.3% at open trade, the main stock index fell to 0.15% in morning trading. The rupiah was also down.

In response to an increase in COVID-19 infection rates, Indonesian authorities imposed tight mobility restrictions from July through August.

The measures to contain the virus had a negative impact on household consumption. This fell from 6% during the first three months to 1% for the third quarter. The country’s GDP is more than half dominated by private consumption.

The biggest contributor to GDP growth was the export sector, which benefitted from an increase in commodity prices.

Radhika Rao from DBS, an economist, said that 3Q was likely the year’s lowest point. 4Q will likely see stronger growth as caseload has receded since then and vaccines have increased, which allows for more restrictions to be lifted.

New data suggests that economic recovery is on the rebound after the August curbs were slowly eased. Last month’s manufacturing purchasing managers index (PMI), reached an all-time high as business disruptions abated, and the PMI was at an all time high.

Sri Mulyani indrawati, Indonesian Finance Minister, warned against rising global inflation, China’s economic slowdown, and possible monetary tightening by the United States or the European Union. This could impact Indonesia’s future growth prospects.

Josua Perdede, Bank Permata economist, stated that a drop in coal prices may also affect the contribution of exports to GDP in the fourth quarter.

Fakhrul Fulvian from Jakarta’s brokerage Trimegah Sekuritas stated, “Going forward economic growth needs to come out of the private sector given that the government intends to reduce its fiscal deficit level.”

From 5.4% in 2017, the government stated that it will reduce the deficit budget to 4.85% of GDP by 2022.

Also, the central banks announced its plans to relax their loose monetary policies by slowly reducing excess liquidity in banking systems next year. The bank also intends to increase the rate of interest at end-2022.

Rao of DBS said that Bank Indonesia could have to tighten its monetary policy earlier if the Federal Reserve starts increasing U.S. rates sooner.

Sri Mulyani, who had forecast a 4% increase in GDP over the full year, was wrong. The central bank has now revised its prediction to 3.5%- 4.3%. Last year’s contraction in Indonesia’s economy was 2.07%, which is the first since 1998.

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