The Indonesian economy grew faster than expected in the first half of this year, fueling confidence that the biggest economy in Southeast Asia would surpass its growth target by the end of the year, the Central Statistics Agency (BPS) says.
The BPS said Thursday the economy grew 5.9 percent year-on-year in the first half, higher than the 5.7 percent and 5.8 percent expected by the central bank and the Finance Ministry.
Slamet Sutomo from the BPS said the higher-than-expected growth would be followed by an even better performance in the third quarter, in line with the increase in consumer spending during the Ramadan festivities.
"The third quarter is the peak of economic growth, which is now at 5.9 percent already. So, it could pass 6 percent by year-end," Slamet said.
The central bank targets up to 6 percent economic growth by the end of the year while the government targets 5.8 percent.
On a quarterly basis, the economy grew 6.2 percent year-on-year in the second quarter, the highest since the third quarter of 2008, when the economy grew 6.1 percent. The main drivers of growth in the second quarter remained private consumption and investment, the BPS said.
Citi economist Johanna Chua said second-quarter economic growth outperformed consensus. Chua said private consumption contributed the most to second-quarter growth with 2.9 percentage points while gross fixed capital formation (GFCF) contributed 1.8 percentage points.
Last week, the Investment Coordinating Board (BKPM) announced that investment realization, which makes up a portion of the GFCF, grew 55.8 percent year-on-year in the second quarter.
"As expected the major drag to growth was in government consumption, which contributed a negative 0.8 percentage points to headline growth," Chua said.
Exports grew almost 45 percent in the first half of the year, reaching US$72.52 billion, thanks to a sharp increase in non-oil-and-gas exports, the BPS said.
Bank BCA's David Sumual said that due to the economic performance in the first half, the bank might revise up its estimate on the country's full-year growth from 6.1 percent.
"I think the government's growth target can easily be surpassed," David said.
Standard Chartered chief economist Fauzi Ichsan said the quantitative valuation of the economic expansion might be above expectations, but had yet to fulfill the desired quality of growth.
"High private consumption should be followed with high productivity in the real sector. That way, the unemployment rate could be reduced. Otherwise it's not a quality growth. So I don't think we have achieved that right now, as the unemployment figures are still relatively high," Fauzi said.
With the annual economic growth target of 5.8 percent, the government expects to curb unemployment to 7.6 percent this year.
Such a dip in the rate would mean 2.32 million more people would find jobs this year, with the assumption that economic growth of 1 percent would absorb 400,000 workers.
The rupiah advanced and bonds rose for a 10th day after the economic growth report. The rupiah rose 0.2 percent to 8,935 per dollar as of Thursday 3:50 p.m. in Jakarta, according to Bloomberg. It touched 8,905 on Aug. 3, the strongest level since June 2007. The rupiah is Asia's second-best performing currency outside Japan this year, having risen 5.1 percent.
Foreign funds have bought $1.3 billion more Indonesian equities than they sold this year, according to exchange data.
The Indonesia Stock Exchange composite index rose 2.06 percent, or 62 points, on Thursday, to close at 3,044.94.
