Indonesia's GDP growth continued to slow

In Q1 2015, Indonesia's GDP growth continued to slow to only 4.7% yoy (down from 5% in Q1-2014), the slowest pace since the 2009 crisis. Household consumption remained relatively robust, but exports continued to contract for the second consecutive quarter.

The slowdown was particularly sharp in the mining industry, reflecting the decline in commodity prices, but also the contraction in production volumes following the export ban on certain unprocessed mining products since 1 January 2014. Indonesia is also hurting from the economic slowdown in China, its second largest trading partner since 2009. China's share of Indonesian exports dropped from 12.4% in 2013 to 10% in 2014. As long as coal, palm oil, rubber and oil prices held at high levels, the country's economic growth exceeded 6%. 

The World Bank now estimates its growth potential at only 5.5% if commodity prices were to hold at current levels, notes BNP Paribas. Even though Indonesia has become a net oil importer, the oil bill has not fallen enough to offset the impact of the decline in commodity prices on the economy as a whole.

According to BNP Paribas, "Household consumption should remain robust, but corporate troubles, notably in the mining industry, will curtail investment.  An upturn in public investment was supposed to be the main growth engine in 2015. But there are still heavy restrictions hampering the implementation of investment projects, as illustrated by the fact that only 18.5% of the year's expenditures had been made in the first three months of 2015."