Kedutaan Besar Republik Indonesia
Embassy of the Republic of Indonesia
Ambassade de la RÉpublique d'Indonésie

Indonesia’s Economic Growth Tops 6% for 8th Quarter

Indonesia’s economy expanded at a robust pace in the third quarter as domestic consumption and strong investment offset a decline in exports, highlighting the nation’s resilience to global financial woes.

The 6.2 percent growth in the July-September period from a year earlier was slower than the 6.4 percent pace set in the second quarter, according to data from the Central Statistics Agency (BPS) on Monday. Still, economic growth was above 6 percent for the eighth straight quarter, according to Bloomberg data, and was in line with the median estimate of seven economists surveyed by the Jakarta Globe last week.

Jongkie D. Sugiarto, an executive at the Association of Indonesian Automotive Manufacturers (Gaikindo), said the prolonged growth was evidence of strong domestic consumption. “It’s good news, actually,” he told the Jakarta Globe on Monday.

“As long as the economy grows strongly, our business will flourish as well,” said Jongkie, who is also president director of Hyundai Mobil Indonesia, the local unit of the South Korean auto maker. Jongkie said that Indonesian auto makers including Astra International and Toyota Astra Motor have announced plans to build new factories to cope with increasing vehicle demand from Indonesian consumers.

Rising purchasing power in Indonesia has prompted Gaikindo, the association comprising more than 20 members, to set its eyes on a record of 1 million car sales this year and 1.1 million in 2013, Jongkie said. The country sold 894,164 cars last year.

In Indonesia, car sales serve as an indicator of economic activity, demonstrating spending by households.

Household consumption, which accounts for about 55 percent of economic activity, grew by 5.7 percent in the third quarter, the report showed.

“Benign inflation allowed consumer confidence to stay robust,” Citibank Indonesia economist Helmi Arman said in a report on Monday.

Inflation accelerated to 4.61 percent in October from 4.31 percent in September but still within the central bank target of 3.5 percent to 5.5 percent this year.

Zulkarnain Arief, deputy chairman for infrastructure, construction and property at the Indonesian Chamber of Commerce and Industry (Kadin), said growth was slowing in the third quarter even though companies had been expanding.

“Business is set to expand,” he said. “At such an expansion pace, it had attracted investment from many countries,” said Zulkarnain, who himself owns a contracting business in South Sulawesi.

Investment, which accounts for one third of gross domestic product, rose 10 percent in the third quarter, supported by strong inflow of foreign investment into the manufacturing sector, BPS data showed.

Indonesia booked a record foreign direct investment of Rp 56.6 trillion ($5.9 billion) in the third quarter, up 22 percent from a year earlier.

The telecommunications, construction and manufacturing sectors led economic growth on the production side. Manufacturing rose 6.4 percent, due to expansion in domestic demand-related industries such as food and beverages, chemicals, cement and steel.

“Improvements of capacity in basic manufacturing industries are yielding results, which will allow for import substitution in the medium term,” said Citibank’s Helmi.

Separate data showed that the unemployment rate declined to 6.1 percent in August from 6.6 percent in August last year. The BPS report showed that the total number of Indonesians with jobs rose to 110.8 million this year from 109.9 million a year before. The country has a population of 240 million.

The employment data suggests more people are working in the formal sector — those who report income taxes — because of the increasing number of jobs in manufacturing. An additional 2.7 million people were working in the formal sector, while employment in the informal sector fell by 1.5 million, BPS reported.

“This rising number of people with permanent work may help to hold up consumer confidence during the ongoing export downturn,” Helmi said.

BPS data showed that net exports — the difference in value between exports and imports — contracted by 9.7 percent during third quarter, despite the trade balance improving from the second quarter.

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