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NEWS UPDATES Asean Affairs  6 November 2010

Does US Fed's Debt-Buying Stimulus Worry Indonesia?

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Indonesia's economic growth unexpectedly slowed in the third quarter, the first slowdown in four consecutive quarters, as excessive and unseasonably heavy rainfall hampered agriculture and mining production, economists said.

The gross domestic product expanded 5.8 percent in the three months to Sept. 30 from a year earlier, after growing 6.2 percent in the second quarter, data from the Central Statistics Agency (BPS) showed.

"Why the disappointing growth then? Rain. The same culprit that pushed up prices a few months ago had also hurt growth - most evidently in the agricultural and mining sectors," said Wellian Wiranto, an economist with HSBC.

Indonesia's rainy season typically begins in the third quarter, but it started early this year, due in part to the impact of the La Nina weather phenomenon.

Such heavy rains can damage crops and cause difficulties in mining operations.

"Both the agricultural and mining sectors showed significant slowdown.

So not only did the weather anomalies push up prices, they had also hurt production," Wellian said.

Net sales at Timah, Indonesia's biggest tin producer, fell to Rp 1.87 trillion ($209 million) in the third quarter this year from Rp 1.99 trillion a year earlier, according to data from the Indonesia Stock Exchange (IDX).

Palm oil harvested by Astra Agro Lestari, the nation's biggest listed plantation company, fell 3.4 percent to 3.02 million tons in the first nine months this year from the year-earlier period, the company said on its Web site.

Juniman, chief economist of Bank Internasional Indonesia, said irregularities in weather patterns had hampered growth in the third quarter, historically "the period with the highest economic growth of the year."

The agricultural sector slumped over the period, growing by 1.9 percent year-on-year compared with 3.1 percent growth in previous quarters.

The sector accounts for 16.5 percent of Indonesia's economy.

Mining production, which contributes 10.9 percent of Indonesia's GDP, grew by 2.7 percent versus 3.8 percent in the second quarter.

The manufacturing sector, which contributes 24.4 percent to GDP, slowed to 4.1 percent in the third quarter from 4.3 percent in the second.

However, private consumption, which accounts for 57 percent of Indonesia's economy, grew 5.2 percent in the third quarter, accelerating from the 5 percent growth in the previous quarter.

Investment also showed strong growth, rising 8.9 percent in the third quarter, from 8 percent in the second. Investment accounted for 32.5 percent of GDP growth.

Foreign direct investment, excluding oil, gas and banking, rose 32 percent to Rp 111.1 trillion this year through September, with real estate attracting the most funding, data from the Investment Coordinating Board (BKPM) showed this week.

Exports, which account for 23.2 percent of Indonesia's economy, expanded 11.3 percent in the third quarter, slowing from a 14.6 percent growth rate in the second.

"Exports are affected by the strengthening of the rupiah against the US dollar," said Eric Alexander Sugandi, an economist from Standard Chartered Bank in Jakarta.

The rupiah, which strengthened to 8,900 against the dollar on Friday, has gained 5.4 percent against the greenback this year, making it one of the best-performing currencies in the Asia-Pacific region outside Japan.

A strong rupiah makes Indonesia's goods sold abroad less competitive.

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