Indonesian GDP Growth Speeds Up in Q2, Surpasses Expectations

According to official data released on Friday, Indonesia’s economic development surged in the April-June quarter amid an export boom fueled by soaring commodity prices. However, the prognosis is jeopardized by monetary tightening, rising inflation, and a potential global recession.

GDP growth in the second quarter was 5.44 percent, which was the strongest growth rate in a year, according to figures from Statistics Indonesia. That exceeded both the first quarter’s 5.01 percent annual growth and the consensus projection of a 5.17 percent increase in a Reuters poll.

The statistics office praised the roughly 20 percent increase in exports from the previous year as a “excellent” result. Comparatively, 16.22 percent was observed in the prior quarter.

The largest economy in Southeast Asia, Indonesia, exports a lot of tin, coal, nickel, and palm oil. Exports have soared, strengthening the nation’s economic resilience, as the crisis in Ukraine has fueled a cycle of rising commodity prices this year.

After the COVID-19 limits were lifted, household consumption—which makes up more than half of GDP—recovered even more. The Eid al-Fitr holiday in May also helped. Investment, however, stagnated.

Sector-wise, the food and beverage, mining, construction, transport, and warehousing industries all experienced stronger growth than in the prior time frame.

It is “strong growth but it won’t last as headwinds mount,” Gareth Leather, an analyst with Capital Economics, said in a note, predicting exports would be affected by declining commodity prices and a global growth slowdown.

Although the price of Indonesian coal is still close to record highs due to strong demand from areas like Europe, the price of palm oil has fallen dramatically in recent months.

The increase in full-year GDP for 2022 will already be at the lower end of the range of 4.5 percent to 5.3 percent, according to the central bank of Indonesia. It had before predicted growth somewhere in the middle of that range.

A worldwide downturn would hurt exports, and domestic inflation would hinder the recovery in consumption, according to Bank Indonesia (BI), which lowered its prediction.

Consumer prices increased 4.94 percent in July compared to the same month last year, which is a seven-year high and has experts urging BI to raise interest rates from pandemic-era lows.

The fact that the economy is doing well should prompt BI to raise interest rates, according to Wellian Wiranto, an economist at OCBC, even though the most recent GDP data revealed “the relatively insular nature of Indonesia’s economy” at a time when recession fears dominate headlines.

OCBC anticipates that the central bank will increase interest rates during its policy review this month.

Airlangga Hartarto, the head of the economic ministry, expressed confidence that the government’s 5.2 percent growth target for the entire 2022 fiscal year will be met. He cited recent foreign company investment promises and a low number of COVID-19 cases.

But the economy was still recovering from the pandemic, he said, adding: “We hope BI will not be in a hurry” to raise interest rates.

Last week, businesses like the Japanese automakers Toyota Motor Corp. and Mitsubishi Motor Corp., as well as the South Korean steel company POSCO Holdings, announced plans to increase their investment in Indonesia.

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