Indonesia's economy demonstrated stronger-than-expected growth in the first quarter of this year, with the primary driver being robust government spending, as per the official data release on Monday.
The country's gross domestic product (GDP) experienced an annual increase of 5.11% in the first quarter, compared to a 5.04% rise in the final quarter of 2023. This surpassed expectations that the GDP would grow by 5.0%.
However, quarter-to-quarter, the GDP showed a decrease of 0.83% in the first quarter, which was slightly less of a drop than the anticipated 0.89% that economists had forecasted. Looking at the expenditure side, there was a 4.91% increase in household consumption. Concurrently, government spending saw a significant surge, registering a double-digit growth rate of 19.9%.
An investment rise of 3.79% was noted, albeit it was more subdued. Trade-wise, exports saw a marginal gain of 0.5%, while imports went up 1.77% in the first quarter.
"We anticipate Bank Indonesia initiating its monetary easing cycle in October, given the likelihood of weak economic activity persisting and concerns regarding inflation and the currency subsiding in the forthcoming quarters," said Gareth Leather, an economist at Capital Economics. Leather also predicted a GDP growth of approximately 4.5% for this year.
However, ING economist Nicholas Mapa warned of potential imminent challenges that could partly decelerate the economy's momentum. Nevertheless, he maintained that the economy does exhibit resilience, with potential full-year growth on track for a 5.0% expansion. Moreover, he suggested there could be more growth potential if the underperforming export sector experiences a vigorous recovery.