Indonesia’s growth slows in the third quarter

Indonesia’s gross domestic product (GDP) grew 5.17% in the third quarter from a year ago, slowing down from the 5.27% year-on-year increase in the earlier quarter, as some emerging economies continue to struggle with capital outflows and weaker exports.

The third quarter reading was close to expectations. Economists in a Reuters poll had expected the quarter to grow by 5.15% while ING Bank economists had expected a 5.18% increase.

The slowdown in growth was due to negative contributions from foreign trade and a weaker contribution from household spending. The fall in the Rupiah has been unable to prevent weaker coal and palm oil prices. Indonesia’s main trading partners China and Singapore were also seen to export less goods.

Although Indonesia is less likely to feel a strain in its manufacturing lines from the trade spat between the United States (US) and China as it is less connected to global supply chains, the country is likely to feel greater pressure on its stock market and currency.

Indonesia’s central bank raised interest rates the fifth time since the middle of May to taper on capital outflows. The Rupiah has fallen about 9.0% this year and is the second worst performing currency among emerging Asian markets, after the Indian Rupee.

Analysts say higher borrowing costs due to the raised interest rates could slow down spendings in the short term. Domestic demand, could also see weakness with the higher interest rates.

Finance Minister Sri Mulyani Indrawati has predicted GDP for 2018 to come in at 5.14%. For next year, Indonesia’s economy is expected to grow by 5.30%.

On Monday evening, the Indonesian Rupiah was 14,967.25 against the US dollar.