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Central Java's economy slows down on weak manufacturing
Central Java, which hosts a number of labor-intensive manufacturing industries, has seen its economy slow along with the broader national economy, as manufacturers are hit by the weak rupiah
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entral Java, which hosts a number of labor-intensive manufacturing industries, has seen its economy slow along with the broader national economy, as manufacturers are hit by the weak rupiah.
In the second quarter of this year, Central Java's economy grew 4.8 percent, down from 5.5 percent in the same period last year, according to Iskandar Simorangkir, chairman of Bank Indonesia's Central Java regional office.
The depreciation of the rupiah, the second-worst performing currency in the region with a drop of around 14 percent so far this year, had hit companies in the processing industry, which is regarded as the backbone of the region's economy, Iskandar explained.
To make matters worse, the ongoing sluggish global economy has also curbed exports as global demand has weakened.
'Although Central Java's economy has slowed, the growth is still higher compared with the national economy,' Iskandar said, referring to nationwide economic growth of 4.7 percent in the second quarter this year, the slowest pace in six years.
The region's slowing growth was also reflected in overall financial transactions in the region, the central bank recorded. Recorded inflow and clearing transactions were lower than the previous quarter.
The biggest contributing factors for the slowdown are dwindling investment and exports, paired with the ongoing weakness in both household and public spending.
Weaknesses in the processing industry, retail and the motorcycle repair sectors, which are among Central Java's largest sectors, caused the slowdown.
'However, the agricultural sector, which is the second-largest in the province, still put in a good performance. Growth in this sector was positive, thanks to the good harvest in the second quarter which prevented the region's economy from plunging further,' Iskandar said.
Meanwhile, the central bank representative office said they were optimistic the province's economy would rebound in the next quarter after seeing improving consumer purchasing power following last month's Idul Fitri holiday.
The government is again expected to support the economy by boosting spending and investment. Spending was also expected to accelerate with the upcoming regional elections at the end of the year, Iskandar said.
'The economy will also be helped by increasing trade and construction, which are expected to accelerate in the third quarter,' he added.
With the expected economic improvement in the third quarter, the region's overall economy this year is expected to grow by 5.2 to 5.6 percent on a year-on-year basis.
Iskandar, however, warned that there were several factors that needed to be addressed in order to meet the growth target, with the biggest challenges coming from overseas with weak global economic growth and the devaluation of the Chinese yuan.
Meanwhile, the primary domestic challenge would be the prolonged drought as a result of the El Nino weather phenomenon, he added. (saf)
