Indonesia's GDP Expands at Slowest Pace in 6 Quarters

By Aloysius Unditu and Arijit Ghosh

Nov. 17 (Bloomberg) -- Indonesia's economy grew at the slowest pace in six quarters as declining prices of palm oil, rubber and coal reduced the value of exports.

Southeast Asia's largest economy expanded 6.1 percent in the third quarter from a year earlier, after growing 6.4 percent in the preceding three months, the Central Statistics Bureau said in Jakarta today. That's more than the median 5.9 percent forecast of 22 economists in a Bloomberg News survey.

Exporters in Indonesia, the world's biggest producer of palm oil and the second-largest maker of rubber, are reeling from a slump in commodity prices amid recessions in the U.S. and Europe. Japan fell into its first recession since 2001, according to a Cabinet Office report today in Tokyo, after the world's second-largest economy unexpectedly shrank in the third quarter.

``Export demand will feel the impact of global slowing going forward,'' said David Cohen, director of Asian forecasting at Action Economics in Singapore. ``Sentiment is likely to be impacted as the stock market has slipped and people are just nervous.''

The rupiah fell 2 percent to 11,810 against the dollar at 2:52 p.m. in Jakarta.

The government last month cut next year's target for Indonesia's overseas-sales growth to below 11.9 percent. Frozen credit markets are making it difficult for companies to obtain the letters of credit needed to secure payment for their shipments.

`Financial Turmoil'

``A few months ago I had five out of six containers already on their way to the port returned because the client suddenly called and said he couldn't secure the payment,'' said Umar Chotob, owner of CV Java Marindra Jaya, which exports wooden furniture. ``The impact of the financial turmoil is remarkable. It's overwhelming.''

Exports growth slowed to 14.3 percent in the quarter from a year earlier. Farm output grew 2.4 percent in the three months ended September, the slowest pace in six quarters. Construction increased 7.5 percent, the least since the quarter ended December 2005.

Rising prices of coal, palm oil, coffee and rubber earlier this year increased the income of farmers and miners. That helped boost sales of motorcycles to a record 612,032 in August, after Indonesians purchased an unprecedented 60,830 cars in July.

Since then, commodity prices have tumbled. Power station coal prices at Australia's Newcastle port, a benchmark for Asia, fell 6.2 percent in the week to Nov. 14 amid declines in global energy prices.

``All export prices are down and you can't compensate that with extra volume because demand is not there,'' said Tony D. Costa, the president of PT Bank Rabobank International Indonesia, a unit of the world's biggest agricultural lender. Consumer spending is slowing and ``motorcycle sales will be much lower. That means the economy will slow.''

Global Slump

Indonesia's economic growth may ease to as low as 5 percent next year as the world tilts toward a recession, Finance Minister Sri Mulyani Indrawati said on Nov. 9.

``It will be very, very challenging for us to maintain growth under the current circumstances,'' Sri Mulyani said. ``Just like other developing countries, we have to be prepared for a longer period of weakening in the economy.''

Government spending rose 16.9 percent, the fastest pace since the three months ended June 2006.

``Private consumption may still be able to sustain Indonesia's growth trajectory amidst deteriorating external trade position,'' said Enrico Tanuwidjaja, an economist in Singapore at Oversea-Chinese Banking Corp.

The statistics agency forecasts 2008 economic growth to be a ``minimum'' 6 percent and less than 6 percent next year.

To contact the reporter on this story: Arijit Ghosh in Jakarta at aghosh@bloomberg.net; Aloysius Unditu in Jakarta at aunditu@bloomberg.net;