The Central Bureau of Statistics (BPS) reported another positive macroeconomic indicator on Friday with higher than expected 4.4 percent year-on-year gross domestic product (GDP) growth for the Indonesian economy in the first quarter of this year.
The economic growth is slower than the 5.2 percent in the fourth quarter of last year but still resilient compared to other countries within the region.
Economic growth on a quarter-to-quarter basis was back to positive territory at 1.6 percent up from the previous negative 3.6 percent in the fourth quarter last year.
However, the government must not in our view sit on its laurels given the many challenges that still lie ahead.
Based on the expenditure side, the external sector mainly contributed to the slower GDP figure with exports and imports having posted -19.1 percent year-on-year and -24.1 percent year-on-year respectively.
Although government and private spending, the backbone of Indonesian economy, contributed 19.2 percent year-on-year and 5.8 percent year-on-year respectively, month-to-month growth in private spending reached 0.8 percent, slower than the last three quarters.
Additionally, it is worth noting that two factors drove the Indonesian economy in the first quarter of this year; the harvesting season and the election period.
Thus, it is not surprising that the agriculture sector mainly contributed to the positive month-to-month economic growth with 19.3 percent growth.
On the back of those two factors, BPS reported a lower unemployment rate of 8.1 percent in February, lower than the 8.4 percent and 8.5 percent in August and February respectively, year-on-year. The lower unemployment figure was mainly contributed by trade, social services and agriculture.
While we should be thankful for one off factors like the elections and harvesting season to prop up the Indonesian economy as well as the stock and currency markets, we believe that more sustainable factors should take over in support of the economy going forward.
This is imperative in order to lift investors' longer term confidence in the financial markets.
Having said that, the key to our future growth lies in the real sector to maintain Indonesian consumers' purchasing power.
Unfortunately for now, we have two different figures from two indicators related to our economic confidence. On one side, the consumer confidence index on April was surprisingly high coming in at 102.5, the highest since February 2005. If we take a closer look, the index reflected that consumers were confident on expected family income, the economic situation and employment opportunities.
However, on the flip side, another index reported by BPS told a different story.
The Business Tendency Index in the first quarter of this year and forecast for second quarter 2009 came in at 96.9 and 98.4, the lowest since the first quarter in 2006.
The business tendency index is a reflection of current economic conditions and company expectations on the future of the economy. Some sectors showed a lower index, such as agriculture, manufacturing industry and construction.
This would suggest that business players still feel uncertain on the current economic prospects with most wanting to see the effectiveness of the fiscal stimulus and other business friendly activities to be successfully implemented by the government.
In other countries like China, the government's stimulus spending and the massive expansion of bank lending have helped to boost new investment and are likely to have a bigger impact on industrial demand in months to come.
For Indonesia, with the elections nearly over, we cannot rely on politically-related stimulus to boost our economy in the second half of this year and beyond.
Real government stimulus would be required to bring about higher confidence for both banks' and business players. With the government actually backed up by many positive indicators to push through economic growth, we believe it is high time that the government bring on the planned financial stimulus . now!
The writer is an economist for Bahana Securities
