Indonesia Q3 growth barely tops 5 pct as consumption stays sluggish

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By Nilufar Rizki and Hidayat Setiaji

JAKARTA, Nov 6 (Reuters) - Indonesia's economy grew slightly slower than expected in the third quarter, as private consumption continued to flatline, confounding efforts by policymakers to push the growth rate much above 5 percent.

Southeast Asia's largest economy expanded 5.06 percent in July-September from a year earlier, the statistics bureau said on Monday, compared with 5.01 percent in both the first and second quarters. A Reuters poll forecast 5.13 percent for the third quarter.

Private consumption grew 4.93 percent in the third quarter from a year earlier, a fraction below the second quarter's 4.95 percent pace.

"Consumption remained flat... Although BI (Bank Indonesia) recently has cut its key rate twice, it will take time to have an impact," said Josua Pardede, an economist at Bank Permata in Jakarta.

On a positive note, government spending grew 3.46 percent in the third quarter, picking up pace after a near 2 percent annual contraction in April-June.

Investment also took on a bigger role in growth and rose 7.11 percent, up from 5.35 percent in the second quarter, including $8.3 billion of foreign direct investment focused on metals, machinery, electronics and mining.

In a bid to spark more lending and growth, BIhas cut its benchmark interest rate eight times - by a total of 2 percentage points - since the start of 2016. The two latest cuts, which surprised the market, came in August and September.

Inflation, often a problem in Indonesia, has been low this year - giving Bank Indonesia (BI) room to make rates cuts.

So far, however, this has not spurred more activity. In September, bank lending expanded 7.86 percent from a year earlier, below BI's 2017 target of 10 percent.

"We think fiscal policy should do more of the heavy-lifting to boost growth rather than monetary policy," said Euben Paracuelles, an economist at Nomura in Singapore.


BI's economic growth forecast this year is 5-5.4 percent, while the government hastargetted 5.2 percent. President Joko Widodo'spledge to reach 7 percent in 2019 is looking unreachable.

Indonesia has boosted infrastructure development and launched economic deregulation packages to cut red tape and streamline its notorious bureaucracy. Still, Widodo has complained about many ministerial regulations hurting investments.

Finance Minister Sri Mulyani Indrawati told Reuters last week that stronger global growth was starting to feed through to Indonesia's economy.

A recovery in demand for commodities such as coal and metals helped Indonesia post a $3.2 billion trade surplus in the third quarter, up from $2.28 billion a year earlier.

Asked about sluggish consumption, Indrawati noted shifting patterns and said some groups were being hit by a cut in electricity subsidies and stagnant wage increases in sectors like construction.

Suhariyanto, the head of the statistics bureau, said middle and upper income Indonesians were saving more instead of spending, adding that individual ownership of shares has increased.

($1 = 13,495 rupiah)

This article appears in: Stocks , World Markets , Politics

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