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resident Joko “Jokowi” Widodo’s Independence Day speech on Tuesday — which covered the direction of the country’s economy — was overshadowed by weak data on exports, consumption and the state budget that may suggest sluggish growth for the rest of the year.

Exports dropped to a seven-year low in July, while motorcycle sales, a key indicator for the domestic consumption-driven economy, plunged by 27.6 percent in the same month from the same period a year ago, according to statistics agency and industry group data.

“The economy must be growing below 5 percent, lower than the government’s target,” Samuel Assets Management economist Lana Soelistianingsih said of the trade data, adding that anticipatory measures would now be too late.

Just two weeks ago, the Central Statistics Agency (BPS) announced that Indonesia’s economic growth accelerated to 5.18 percent in the second quarter of this year, rounding up first half growth to 5.04 percent, versus the government’s 5.2 percent economic growth target.

Growth in government spending and private consumption, which respectively account for 9 percent and 55 percent of gross domestic product (GDP), helped jack up the second quarter economic growth figure thanks to a seasonal Ramadhan and Idul Fitri boost, something that may not be sustained in the future with the recent weak reading.

Motorcycle sales dropped the most this year in July to 305,153 vehicles, data from the Indonesian Motorcycle Industry Association (AISI) showed. Meanwhile, the government may run out of money to boost the economy, with the state budget deficit widening to 2.08 percent of the GDP as of Aug. 5, already close to the year-end target of 2.35 percent.

“We all know the lesson learned from the last two years’ budgets is that we have to be more realistic,” said Bank Mandiri economist Andry Asmoro.

Almost three-quarters through the year, as of Aug. 5 tax revenue collection had reached 40.2 percent of the target set out in the revised state budget, at Rp 618.3 trillion (US$47.6 billlion). At the same time, government spending reached 49.8 percent of the target at Rp 1.03 quadrillion.

Finance Minister Sri Mulyani Indrawati has planned to slash Rp 133 trillion from the state budget to avoid a further ballooning deficit and greater revenue shortfall. But the move, while lauded by many as making the state budget more credible, could yield adverse effects of weaker-than-expected economic activity, economists said.

The widening deficit to above 2 percent is a yellow light for the government to put the brakes on its spending, said Maybank economist Juniman.

“This is a consequence the government should take amid sluggish revenue collection,” he said.

Sri Mulyani announced previously that the government would cut Rp 65 trillion from ministry and institutions’ spending and Rp 68.8 trillion of regional transfers in anticipation of a tax revenue shortfall of Rp 219 trillion this year. She also widened the budget deficit target to 2.5 percent from 2.35 percent stated in the revised state budget.

Going forward, the government has to make a more rational tax target for next year and base its calculations on this year’s realization, Juniman said.

“From now on, leave behind politically set targets and get back to economic fundamentals,” he said, adding that the public was already well aware of the unsupportive global and domestic economic conditions. “The government should spread optimism among the public that 5 percent growth is already good enough for Indonesia.”
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Dewanti A. Wardhani contributed to this story