I

ndonesia’s economy may recover more slowly than expected as the expansion of the manufacturing industry, which the government hopes will propel growth amid low private consumption, remains weak.

Despite posting a stable annual production growth of around 5 percent, the sector saw its contribution to gross domestic product (GDP) growth shrink to around 4 percent since 2013 from an average of 6 percent in 2011 and 2012, according to data compiled by DBS Group Research.

Investment growth in machinery and equipment has also been in a negative state over the past three years while capital goods imports fell 35 percent between February 2013 and March this year, indicating a sluggish manufacturing sector.

Indonesia’s imports of capital goods, which mostly represent government and private spending, contracted by 18.22 percent year-on-year (yoy) to US$5.3 billion in the first three months of 2016. At the same time, raw material imports dropped by 15.21 percent to $23.5 billion.

In contrast, imports of consumer goods surged by 23.74 percent to $3.14 billion in the first quarter of the year.

“We can’t continue our dependence on consumption growth as it is now weaker compared to two or three years ago,” DBS economist Gundy Cahyadi said on Wednesday.

Consumption growth has showed a downward trend since 2013, reaching a 4.9 percent yoy decrease in last year’s fourth quarter, a level unseen since 2011.

Recent surveys by Bank Indonesia (BI) also show that the consumer confidence index stagnated in March after falling to 110 in February from 112.6 in January.  Meanwhile, the retail sales index grew 9.9 percent yoy in February, lower than the 12.9 percent recorded in January, and is projected to continue sliding to 9.6 percent in March.

Despite the bleak outlook, consumption remained the main booster of Indonesia’s GDP growth in the first quarter of this year as investment was projected to be lower than the previous quarter, Gundy said.

“Private investment growth is not optimal yet,” he said, adding that investment expanded by around 4 percent recently, while historically, it had grown by above 8 percent per annum.

Data from the Central Statistics Agency (BPS) shows that investment growth reached 8.8 percent yoy in 2011. After the period, it slowly moved downward and stood at 4.9 percent last year. However, the growth started to demonstrate an upward trend since last year’s third and fourth quarter when it booked 4.6 percent and 6.9 percent growth, respectively, compared to 3.7 percent in the second quarter.

The growth, Gundy said, was not enough yet to push economic growth above 5 percent in the long term, and that no quick recovery would occur, as internal and external risks would remain throughout the year.

DBS forecasts that the Indonesian economy will expand by only 6 percent over the next five years compared to the government’s target of 7 percent by 2019.

“The government has to be more active in propping up sentiment in the private sector,” Gundy said. He lauded the government’s 11 policy packages that aim to boost the sluggish economy, but added that it would take time to see the impacts in the real sector.

Previously, the president director of publicly listed cigarette maker PT HM Sampoerna, Paul Janelle, said the policy packages signaled the government’s intention to being open to and encouraging investment.

“The 11 packages have had no major impact on our business, but in terms of opening up the economy overall they’re good,”he said.

Separately, UN Economic and Social Commission for Asia and the Pacific (ESCAP) regional advisor on ASEAN, Larry Maramis said that the UN recommended Indonesia boost its local demand because global demand was now weak amid the economic slowdown.

“To bolster economic growth, the government will need to strengthen efforts to stimulate domestic demand,” he said at the launching of the UN Economic and Social Survey of the Asia and the Pacific 2016 in Jakarta on Thursday.

Larry also emphasized the importance of agricultural productivity as a high percentage of the local workforce were a part of the sector and still lived in poverty.

The survey data shows that the agricultural productivity growth rate has been less than 2 percent for the last five years.