Indonesia growth slows to 4-year low adding to calls for rate-cut

Bloomberg

Indonesia’s economy expanded at its weakest pace in four years in 2019, opening the door for additional interest-rate cuts as the nation braces for the impact of a spiraling coronavirus crisis.
Gross domestic product rose 5.02% last year, broadly in line with the 5.04% forecast in a Bloomberg survey of economists, according to data released Wednesday. Fourth-quarter growth of 4.97% was the slowest since late 2016, below the median estimate of 5% in the survey.
“We continue to maintain our view that domestic demand has been weak, and we see little impetus for it to turn around meaningfully,” said Mohamed Faiz Nagutha, an economist with Bank of America Securities in Singapore. “As such, policy support — from both fiscal and monetary sides — remains appropriate.”
He expects the central bank to cut interest rates by 50 basis points this year. Bank Indonesia lowered its key rate four times since July, and left it unchanged last month.
On Wednesday, Bank Indonesia Governor Perry Warjiyo pledged to maintain an accommodative stance this year and said easing would not be limited to lowering the benchmark rate.
The governor last week called for greater coordination between monetary and fiscal authorities to support growth, saying the “central bank cannot be the only game in town.”
Government spending slowed to 0.48% in the fourth quarter — its lowest pace of growth since 2017 — and down from 0.98% in the previous three months, data showed. While President Joko Widodo had targeted a growth rate of 7%, the economy has hovered around the 5% level since he first took office in 2014.
Sung Eun Jung, an economist at Oxford Economics Ltd in Singapore, said while household spending held steady in the final quarter, government consumption “barely grew at all” and was a drag on domestic demand. The economy was expected to weaken further as exports take a hit from the coronavirus outbreak and tourism slows.
“With China temporarily halting trade and production, we expect Indonesia’s growth to slow to 4.8% in H1 2020,” Sung said. “To further boost demand, we now forecast Bank Indonesia to cut its policy rate by 25 basis points” in the first quarter, she said.