Private consumption growth has been flat at around 5 percent for the last 12 quarters, stretching back to December 2014.
gainst all expectations, Indonesian economic growth stagnated at 5 percent year-on-year (yoy) for the fifth consecutive quarter in the third quarter of 2017. President Joko “Jokowi” Widodo rolled out several economic packages and sped up the construction of infrastructure projects, but the growth was still disappointing despite stronger growth in some sectors of the economy.
On the production side, some sectors that contribute heavily to gross domestic product (GDP) showed strong growth. Manufacturing grew by 4.8 percent, the highest since 2013. This is in line with the growth of private investment, which rose 7.1 percent, the highest since December 2012.
Construction and wholesale and retail trade, which are important sources of employment, grew at a healthy rate of 7.1 percent and 5.5 percent, respectively.
Even the mining sector, which has seen negative growth for the last two years, grew by 1.8 percent, due to relaxation of the government ban on unprocessed mineral exports. But strong growth in these sectors was weighted down by weak growth in agriculture that has declined steeply in the last two quarters. As agriculture is the second biggest contributor to GDP after manufacturing, the decline in its growth dragged down overall GDP growth this year.
Exports grew strongly in the last two quarters, but so did imports. As a result, the effect of the net export on GDP growth was not significant.
Exports are expected to remain strong in the coming quarters as commodity prices rise, but imports might also rise due to rising imports of raw materials and capital goods.
On the demand side, the major narrative of growth this year has been the weak growth in consumption. As consumption contributes to more than half of GDP, it needs to grow higher than the current rate in order to lift overall GDP growth. But what is happening is that people are not spending as much as expected.
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