Indonesia economy grows 5.11% in Q1, beats forecast

Indonesia's economy, the largest in Southeast Asia, expanded 5.11% in the first quarter of this year, higher than the 5.04% recorded in the same time last year and economists’ expectation of 5%.

The result was attributed to high government spending ahead of the country’s presidential election in February, and household spending in preparation for the holy month of Ramadan and Eid al-Fitr in April.

During the three-month period, government spending jumped nearly 20% annually, versus a growth rate of just 2.81% in the previous three months, with higher spending for election and welfare programmes to help the poor cope with high food prices.

Meanwhile, household spending grew 4.91% on a yearly basis, compared to a 4.47% expansion in the previous quarter. Household consumption makes up over half of Indonesia's GDP.

Investment growth, however, slipped to 3.79% in January-March, from 5.02% in the fourth quarter.

Gareth Leather, an economist at the Capital Economics, held that the economy is set to struggle over the coming quarters as high interest rates, lower commodity prices and below-trend growth weigh on demand.

Rate hikes by Bank Indonesia (BI) included a surprise move last month to step up support for the rupiah currency, which has fallen to four-year lows amid global market volatility.

DBS Bank economist Radhika Rao said BI would keep the door open to further tightening should the rupiah fall further, predicting 5% full-year growth for the economy.