Indonesia’s Economy Expands 6.5% Aided By Domestic Consumption, Investment

Indonesia’s economy grew more than 6 percent for a fourth straight quarter as consumption, investment and exports weathered a faltering global recovery.

Gross domestic product rose 6.54 percent in the three months through September from a year earlier, compared with a revised 6.52 percent in the second quarter, the Central Bureau of Statistics said in Jakarta today. The median of 16 estimates in a Bloomberg News survey was for a 6.6 percent expansion.

People commute to work using motorcycles in Jakarta, Indonesia. The world’s fourth-most populous nation relies on consumption more than some of its neighbors, making it less vulnerable to swings in global demand. Photographer: Dimas Ardian/Bloomberg

Susilo Bambang Yudhoyono, Indonesia's president, aims to expand Southeast Asia’s largest economy at an annual average rate of 6.6 percent through the remainder of his term ending in 2014. Photographer: Dimas Ardian/Bloomberg

The pace of growth may be not be enough to dissuade policy makers from lowering rates for a second straight meeting this week as Europe’s debt crisis deepens and the U.S. economystruggles. Bank Indonesia Governor Darmin Nasution has said there is room to cut borrowing costs again this year and that inflation isn’t the primary challenge at a time when global growth is weakening.

“This confirms Indonesia’s resilience to external weakness,” said Dariusz Kowalczyk a Hong Kong-based strategist at Credit Agricole CIB. “But it is a bit below consensus -- a minor negative for the Indonesian rupiah” which could come under more pressure as the central bank is set to cut rates, he said.

The rupiah has dropped about 5 percent against the U.S. dollarin the past three months, falling along with most other Asian currencies as global risks lead investors to shun emerging-market assets. The currency fell 0.7 percent to 8,965 per dollar as of 1:30 p.m. local time, while the Jakarta Composite stock index was little changed, according to data compiled by Bloomberg.

Domestic Drivers

“Indonesia’s GDP growth was mainly driven by domestic activity,” Slamet Sutomo, deputy chairman of the statistics office, said at a briefing in Jakarta today. Full-year expansion in 2011 may be 6.5 percent, he said.

Bank Indonesia lowered rates last month for the first time in more than two years, joining nations from Australia to Brazil in cutting borrowing costs in recent weeks to shield growth.

The central bank will reduce rates by a quarter of a percentage point to 6.25 percent on Nov. 10, according to seven of 16 economists in another Bloomberg survey, with the rest predicting no change. Bank Indonesia targets inflation of about 4 percent to 6 percent this year and around 3.5 percent to 5.5 percent in 2012.

Indonesia’s sustained growth contrasts with slowing expansion across other Asian economies such as China and Taiwan. Australia cut rates this month for the first time since 2009 whileSingapore has said its expansion will stall over the next few quarters.

Consumption Buffer

The world’s fourth-most populous nation relies on consumption more than some of its neighbors, making it less vulnerable to swings in global demand.

PT Astra International, Indonesia’s biggest automotive retailer, said last month net profit for the nine months through September rose 30 percent from a year earlier partly on domestic demand growth.

Still, Indonesian exports rose 46.3 percent in September from a year earlier, with growth in overseas shipments exceeding 35 percent every month from April.

President Susilo Bambang Yudhoyono’s government has held off from removing fuel subsidies this year, helping cool consumer prices. Inflation eased to a 17-month low of 4.42 percent in October.

Yudhoyono aims to expand Southeast Asia’s largest economy at an annual average rate of 6.6 percent through the remainder of his term ending in 2014, partly by boosting investment in roads, railways and ports.

Investment

Total investment rose 15.3 percent to 65.4 trillion rupiah ($7.3 billion) in the three months ended Sept. 30 from a year earlier, Azhar Lubis, deputy chairman of the Investment Coordinating Board, said Oct. 20. The country attracted 181 trillion rupiah in the nine months through September, a 21 percent increase from a year earlier, he said.

Toyota Motor Co. and Unilever NV are among companies investing in the $707 billion economy.

Private consumption climbed 4.8 percent in the third quarter from a year earlier, today’s report showed. Exports rose 18.5 percent, investment climbed 7.1 percent and government consumption advanced 2.5 percent.