Investors should not be deterred by a slowdown in economic growth rates in Indonesia, according to Fitch Ratings, which described growth in Southeast Asia’s largest economy as “positive”.
The international ratings agency made its statement after Indonesia announced that it booked 6.1 percent growth in its gross domestic product (GDP) during the fourth quarter of 2012, its smallest increase in the last two years.
Fitch Ratings said that the GDP dip was not worrisome, despite concerns from local analysts that growth might slow further given an absence of signs that a solid recovery was underway for the global economy.
The slowdown in the fourth quarter was attributed to a surge in investment and domestic consumption that could not counter the fall in the nation’s exports. The slowdown kept the country’s annual growth rate at 6.23 percent in 2012, which was lower than the government’s initial target of 6.5 percent.
“Slipping from 6 percent to 5.5, or even 5 percent, is not the end of the world for Indonesia,” Philip McNicholas, the director of Asia-Pacific sovereigns with Fitch Ratings, said in Jakarta on Wednesday.
“It’s not what people have been used to, given the track record for the past five or six years. But it’s still a quite good performance relative to the global pinch,” McNicholas said.
The GDP slowdown had been expected by Fitch, McNicholas added, citing macroeconomic prudential measures implemented by Bank Indonesia (BI) in mid-2012 to limit growth in the consumer sector, such as the central bank’s move to increase the minimum loan-to-value ratio for vehicle loans, among other things.
McNicholas said that he would not be surprised to see the slowdown continue into as late as the second quarter of 2013, although he expressed optimism that Indonesia’s economy would see a significant pick-up afterward.
A stronger recovery in the US and an improving situation in Europe by the second half would support increased growth rates in Indonesia, according to McNicholas.
He added that there was a possibility that China’s economy would grow at a faster pace in the second half, which would give a boost to Indonesia’s exports, given the nation’s trading dependence on China.
China is Indonesia’s largest trading partner, comprising 13.6 percent of the archipelago’s total non-oil and gas exports. Indonesia shipped US$20.86 billion in goods to China in 2012, principally comprising basic commodities such as coal and crude palm oil.
Despite its bright outlook for Indonesia for the coming year, Fitch also expressed concern about growing nationalism in the country’s energy and resources sector ahead the 2014 elections, which it said would lead to “regulatory uncertainties” that might spook prospective investors.
The ratings agency also warned of a slowdown in economic and institutional reforms in the run-up to the elections.
National Development Planning Minister Armida Alisjahbana said that the government remained upbeat about meeting its annual growth rate target of 6.8 percent for 2013.
“We couldn’t meet the growth target last year because of the situation in the global economy, which affected the prices of commodities and hurt our exports. But the situation is gradually recovering and we estimate that in the second quarter of 2013, exports will slowly grow,” Armida said. (sat/aml)