GO
Loading...

Indonesia's Q2 economy grew its slowest since 2009

Indonesia's economy unexpectedly failed to gain traction in the second quarter, growing at the slowest annual pace since the last three months of 2009.

The statistics bureau said the growth rate was 5.12 percent, compared with the median forecast of 5.30 percent in a Reuters poll and the previous quarter's pace of 5.21 percent.

Indonesian growth has been trending down in the past two years. One factor has been weak exports. This year, mining exports have fallen significantly because of Indonesian rules banning shipments of mineral ore.

Read MoreIndonesia's new president faces tough juggle ahead

In the latest quarter, there was a trade deficit of $2.20 billion in April-June, following a surplus of $1.07 billion in the first three months of the year.

Leo Putra Rinaldy, economist with Mandiri Sekuritas in Jakarta, said the slowdown in the second quarter appeared to be "mainly caused by slowing investment. Political conditions in the second quarter may have caused some businesses to hold their investments and tightening in monetary policy by the central bank is also starting to materialize, especially in the property sector."

The second quarter included the campaign to elect Indonesia's new president. Some economists thought campaign spending would add enough to domestic consumption to lift the quarter's growth pace about that of January-March.

A scene of Jakarta, Indonesia.
Adek Berry | AFP | Getty Images
A scene of Jakarta, Indonesia.

Getting the economic growth rate higher is one of many challenges that will face President-elect Joko Widodo, who is due to take office on Oct. 20.

Domestic consumption, which accounts for more than half of GDP, has remained solid even though inflation soared last year after fuel prices were hiked.

The central bank has maintained its tight monetary policy since last year to aid the rupiah, cool inflation and contain the country's large current account deficit.

Read MoreWhat Indonesia really needs to kick-start growth

Between June and November 2013, Bank Indonesia raised the benchmark interest rate by 175 basis points to 7.5 percent. The rate has been on hold since then, and most economists expect it to remain on hold the rest of this year.

The central bank's next policy meeting is Aug. 14.

Contact Asia Economy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    To learn more about how we use your information,
    please read our Privacy Policy.
    › Learn More