R

eality hit Indonesia hard in the face as its first quarter growth came in weaker than expected, but many argue that the journey has just begun.

Those who pay close attention to the country’s economic development probably lost all their bets, following the announcement of its gross domestic product (GDP) figures this week.

The economy only expanded by 4.92 percent year-on-year (yoy) in the January to March period, less than the 5.07 percent median estimate in a Bloomberg survey of 15 economists and the 5.1 percent projected by Bank Indonesia (BI).

The result was also lower than the annual growth rate posted in the last quarter of 2015 at 5.04 percent.

Data from the Central Statistics Agency (BPS) reveal that while domestic consumption or household spending remained relatively strong with an annual growth rate around 5 percent, low government spending was the factor that dragged down growth.

Government spending only rose by 2.93 percent yoy, falling from 7.31 percent yoy in the previous quarter.

Meanwhile, investments — the second-biggest contributor to the economy — weakened as the growth rate dropped to 5.57 percent from 6.9 percent.

The weak data, however, did little to dent the government’s and economists’ hopes of an economic rebound in the upcoming months.

Finance Minister Bambang Brodjonegoro, for instance, said that government spending would have a more significant impact on the economy in the second and third quarters, paving the way for 5.3 percent full-year growth in 2016.

He argued that higher growth in last year’s fourth quarter was mostly supported by heavy government spending that traditionally occurs when approaching the year’s end.

Bambang reiterated the government’s commitment to accelerate and distribute spending more evenly this year, but reminded that many projects were only just beginning in the January to March period.

BI Governor Agus Martowardjojo also attributed the slower growth to seasonal factors of weak budget realization in the early months.

The central government has so far disbursed only 14.6 percent of its allocated spending budget or equal to Rp 193.5 trillion (US$14.49 billion) in the first quarter alone.

BMI Research, a division of rating agency Fitch, wrote in its notes that the economy would pick up pace over the coming quarters and eventually hover around 5.2 percent, supported by strong investment and a public infrastructure drive.

Bank Mandiri economist Andry Asmoro and Maybank Indonesia chief economist Juniman also both expressed their optimism, in that the economy could rise by 5 percent or even higher in 2016.

“This is just a regular cycle,” Andry said, brushing off concerns that the economy might continue falling further. Mandiri sets its forecast at 5 percent.

Meanwhile, Bank Danamon economist Wisnu Wardana wrote in an email that the country’s fundamentals were actually “not as bleak as initially thought”.

According to Danamon’s calculation, it takes as many as four consecutive quarters of increased government and corporate spending before household spending picks up.

London-based Capital Economics expects growth to come at 5 percent throughout the year, but warns that external conditions will still present headwinds for Indonesia.