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Construction slowdown to drag on RI economic growth this year
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Workers on the Light Rapid Transit (LRT) line construction project carry out improvements to one of the pillars of the mass transportation system in Jakarta on March 9, 2023. (AFP/Bay Ismoyo)
D
espite an overall good performance throughout many sectors and economic indicators, Indonesia is experiencing a lag in construction and real estate investment that in turn might hold back economic growth this year.
For months, Bank Indonesia (BI) believed Indonesia’s economy could grow between 4.5 and 5.3 percent this year and projected an “upward bias toward the upper bound”, meaning it would likely hit above the 5 percent mark of that range.
However, the central bank eliminated this phrase in its most recent projection, as it saw a need to take a closer look at investment, particularly in relation to construction. BI said it was likely to move toward the middle point of the range, which is around 4.9 percent.
“Consumer spending is still okay, exports too. Overall investment is also good, when we look deeper, non-construction investment is good, but investment in construction is growing at a slower rate,” BI Governor Perry Warjiyo said in a press conference following the central bank’s monthly monetary policy meeting held on May 25.
Perry went on to say that Indonesia would still see relatively high growth of around 5.1 percent in the second quarter following an above-expectation figure of 5.03 percent year-on-year (yoy) in the first quarter.
For the rest of the year, the central bank sees a need to pay more attention to investment patterns, as the country will face multiple challenges simultaneously, namely the elections and a global economic slowdown alongside monetary and fiscal tightening.
“The pattern in election year is normally wait and see. Hopefully that does not result in strong pressure on investing,” Perry said.
