By Pranoy Krishna
BENGALURU- Indonesia’s economy grew at a steady pace last quarter driven by strong consumer spending and exports, a Reuters poll of economists showed, though there are concerns softening demand from China could hamper growth in 2025.
Bank Indonesia cut interest rates for the first time in three years in September, supporting growth and boosting household spending, which accounts for over half the country’s gross domestic product (GDP).
Southeast Asia’s largest economy grew 4.98 percent in the October-December period compared to a year earlier, according to the median forecast in a Jan. 27-31 poll of 22 economists.
Forecasts ranged from 4.42 percent to 5.10 percent. Data will be released on Wednesday. Growth in the third quarter was 4.95 percent.
“Q4 growth was driven by robust domestic consumption … alongside solid export performance. These factors, coupled with a recovering investment climate, contributed to economic activity,” said Hosianna Evalita Situmorang, an economist at Bank Danamon.
“Higher commodity prices, particularly crude palm oil, coal, and nickel, supported exports and positively impacted the automotive sector.”
The resource-rich country recently reported exports grew 4.78 percent in December, after expanding more than 9 percent in the two preceding months. While December exports of palm oil products surged 30 percent year-on-year, reaching $1.89 billion, coal exports dropped 10.4 percent to $2.69 billion.
The poll put GDP growth on a quarter-on-quarter non-seasonally-adjusted basis at 0.56 percent in October-December compared to 1.5 percent in Q3 2024, suggesting weak demand from China is hampering the economy.
China is Indonesia’s largest trading and investment partner.
“Weaker demand (and) investment…from China, will be one of the reasons why Indonesia might struggle to recapture its previous growth form,” said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics.
US President Donald Trump imposed an additional 10 percent tariff on Chinese goods over the weekend, adding to the risk for Indonesia.
Indonesia’s GDP is expected to expand 5.0 percent in 2025, almost in line with Bank Indonesia’s forecast, and then pick up slightly to 5.1 percent in 2026, a separate Reuters poll found.
Meanwhile, Indonesia’s annual inflation rate slowed to its lowest in 24 years to 0.76 percent in January, official data showed on Monday, down sharply from 1.57 percent in December and below the lower bound of the central bank’s target range for the year.
According to the country’s statistics bureau, it was the lowest rate of inflation since January 2000.
The rate came in below analysts’ estimate of a 1.88 percent in a Reuters poll and outside Bank Indonesia’s (BI) target range of 1.5 percent to 3.5 percent.
On a month-on-month basis, the consumer price index dropped by 0.76 percent in January, mainly because of a 50 percent discount in electricity tariffs for some customers and lower airfares, the statistics bureau said. — Reuters
The government has said electricity discounts will last until February as part of a set of incentives to support people’s purchasing power.
The core inflation rate, which strips out government-controlled prices and volatile food prices, rose slightly in January to 2.36 percent year-on-year compared with December, while it was close to the poll forecast of 2.30 percent.
BI delivered a surprise cut in rates at its policy review last month, and said inflation was expected to remain contained over 2025 and 2026. It projected a 2.7 percent annual inflation rate at end-2025, with core inflation at 2.6 percent.
The central bank is unlikely to resume its cutting cycle this month despite low inflation, however, as it will probably consider rupiah stability amid market turbulence caused by US President Donald Trump’s tariffs on Canadian, Mexican and Chinese goods, Bank Danamon economist Hosianna Situmorang said.
The rupiah fell 1 percent, hitting16,470 per dollar on Monday, its lowest level since June 2024, ahead of the release of inflation data. It has since recovered a touch. —Reuters