NEWS

Indonesia's GDP grew 6.4% in the second quarter.

Indonesia's GDP growth exceeds expectations

Indonesia’s economic growth in the second quarter of the year has surprised everyone’s expectations by clocking in at 6.4%.

Many analysts were expecting GDP figures in South East Asia’s largest economy to be stifled by the global downturn, but forecasts of 6.1% growth have proved to be wide of the mark.

The country’s statistic’s bureau has attributed the growth to an increase in investment and domestic consumption – the latter accounts for almost 60% of Indonesia's overall economy.

The 6.4% Q2 growth comes on the back of 6.3% growth in Q1, showing that Indonesia remains resilient in the face of the global slowdown.

Taimur Baig, an economist with Deutsche Bank, said: "Helped by record low interest rates, stable inflation, strong consumption and business investment sentiment, the Indonesian economy continues to grow robustly.

“As per today's data, Indonesia remains one of the fastest growing, and perhaps more importantly, one of the most stable economies in Asia.

Baig has expressed concern that “rates are too low and could cause over-consumption and investment in the medium term”, but for the time being remains comfortable with the view that “Indonesia is poised for 6% plus growth this year and next”.

Meanwhile, Prakriti Sofat, an economist with Barclays, told the BBC that the key vulnerability for Indonesia comes from its “exposure to China”. Sofat warned that if China's economy continued to slow - the Chinese economy grew by 7.6% in Q2, representing its slowest rate of growth in three years - the effect on commodity prices and on Indonesia's economic growth may be much more significant.

"That terms of trade effect also feeds into household spending as well as business confidence and hence the investment in the economy," she explained.