Business
* Q2 GDP up 6.4 pct y/y, vs forecast of 6.1 pct * Pick up supported by domestic consumption, investment * SE Asia stocks firm as investors bet on long-term growth * Rates seen on hold until next year to drive * Analysts cautious about import strength, see tighteninglater (Edits) By Aditya Suharmoko and Neil Chatterjee JAKARTA, Aug 6 (Reuters) - Indonesia's economic growthsurprisingly picked up in the second quarter of this year,fuelled by easy credit and strong domestic demand, signallingSoutheast Asia remains resilient to the global slowdown. Most economists expect the central bank to keep interestrates on hold at a record low into next year to drive growth,although some analysts caution that tighter policy might beneeded beyond that to dampen domestic demand, which has pushedthe trade account into deficit and undermined the rupiah. Indonesia's economy is growing faster than all the BRICSnations bar China, making it for some analysts a worthycontender to join the grouping, which also includes Brazil,Russia, India, and South Africa. The country's statistics bureau said gross domestic productgrowth last quarter was 6.4 percent from a year earlier against6.3 percent in the first quarter, helped by domestic consumptionand investment. GDP grew by 2.8 percent on a quarterly basis,although the figures are not seasonally adjusted. "The strong Q2 growth provides a cushion against the risk offurther growth setbacks in the rest of the year," said AnindaMitra, an economist at ANZ Bank in Singapore. "But we still think policymakers will need to tightenpolicies to ensure that the strong growth does not destabilisethe external financing gap, which could be rupiah negative andultimately not good for inflation either." Economists had forecast that annual growth in SoutheastAsia's largest economy would ease to 6.1 percent, citingshrinking exports. Financial markets provided little reaction to the data,which showed that buoyant domestic demand, especially intransport, hotels and government consumption, kept growth on aneven keel. Thailand and Malaysia are also expected to post apick up in economic activity in the second quarter versus thefirst quarter, analysts have said. Investors are pouring into Southeast Asian stock markets,with bourses in Manila, Ho Chi Minh, Bangkok and Singapore allseeing double-digit rises this year. Investors are betting onlong-term growth - IHS Global Insight forecasts the region's GDPwill overtake Japan by 2028. As demand from China and Europe fell in recent months,Indonesia has had consecutive trade deficits between April andJune, weighing on the rupiah. The April deficit was thefirst since mid 2008, barring a small shortfall in July 2010,Thomson Reuters data shows. The currency, which has fallen 4.4 percent against thedollar this year, is the second-worst performer among emergingAsian currencies. A burgeoning appetite for imports, from wheat for fast foodto iPads and luxury cars, in a country that mostly exports rawcommodities such as coal and crude palm oil, created a $1.3billion trade deficit in June - a deficit economists seecontinuing to the end of 2012 to keep pressure on the rupiah. Expectations for slower growth meant some economists hadstarted to call for rate cuts this year. But most now see rateson hold into 2013 as Bank Indonesia will want to support annualgrowth towards President Susilo Bambang Yudhoyono's target of 7percent by the time of national elections in 2014. The central bank next meets on Thursday to review policy. "The central's bank underlying growth bias means thattightening in the near-term is unlikely, especially givenexternal headwinds," said Prakriti Sofat, economist at BarclaysCapital, expecting flat rates into the first half of 2013. DOMESTIC ECONOMY FLYING The central bank's policy bias could shift towardstightening when global demand conditions improve. It has alreadymoved to try to avoid bubbles in the property and auto sectorsby tightening requirements for downpayments in June. Strong loangrowth meant banking sector profits are up 19 percent this year. Transport and communications was the fastest growing sectorin the first half of the year, up 10.1 percent in the secondquarter from a year ago. Luxury car sales are booming as growingwealth leads drivers to upgrade from Toyotas to BMWs, while young consumers are snapping up smartphones. The trade, hotel and restaurant sector grew faster in thesecond quarter, with the world's fourth largest populationincreasingly flying on new airline routes to stay at brandedbudget hotels. In Jakarta, trendy new eateries regularly open,while convenience stores are spreading across the country. Inflation picked up last month because of higher food pricesahead of the Muslim Ramadan period, although it looks set tostay within the central bank's target range this year. Government consumption also picked up in the second quarter,while foreign direct investment grew 30 percent to tap thecountry's mineral resources and consumer demand. "As per today's data, Indonesia remains one of the fastestgrowing, and perhaps more importantly, one of the most stableeconomies in Asia," said Taimur Baig at Deutsche Bank inSingapore. But he added: "We are concerned that rates are too low andcould cause over-consumption and investment in the medium term,but for the time being we remain comfortable with the view thatIndonesia is poised for 6 percent plus growth this year andnext," he said. (Reporting by Aditya Suharmoko and Adriana Nina Kusuma; Editingby Raju Gopalakrishnan and Neil Fullick)
