beyondbrics

Indonesia’s economic planners might well be humming Queen after reading the latest growth data. “I’m a shooting star leaping through the skies, like a tiger defying the laws of gravity.”

While most analysts don’t expect the central bank to cut rates on Thursday, a third of them do. Monday’s GDP figures suggest the economy is strong enough to truck along quite happily without any short-term help.

The quarterly growth figure of 6.5 per cent leaves Indonesia on track for its strongest annual economic performance since 1995 – ie just before the Asian financial crisis. Chart below from HSBC:

Not bad when the rest of the region – notably China and India – are experiencing a broad and sustained adjustment to lower growth rates.  Meanwhile, growth in 2011 in the Philippines was lower than half the rate in 2010, while flooding in Thailand severely crimped GDP expansion there.

And so to Indonesia, the gem in the emerging market crown. Domestic consumption and infrastructure spending helped to offset a tail-off in export growth towards the end of the year. Exports are still among the main drivers of growth, but much less so than in other Asian EMs. Think of Taiwan, with an exports-to-GDP ratio of 74 per cent.

So what are the gravitational forces that might pull Indonesia back down?

Last time Indonesian markets went on a serious run, it was inflation that ultimately put the dampers on. With inflation pressures still looming, and interest rates already at a record low of 6 per cent, the case for another cut – despite action from central banks elsewhere – looks pretty weak.

But then, as Tim Condon argued on beyondbrics last year, perhaps the Bank Indonesia isn’t worried about growth at all. If hot money is the real concern, then another cut suddenly looks quite plausible. In which case, it will be less a case of “Don’t stop me now” and more “Ain’t no stopping us now”.

Related reading:
Asia’s mixed monetary message, beyondbrics
Indonesia: a haven for investors? beyondbrics