According to the data released Monday by Bank Sentral Republik Indonesia (BI), the country’s gross domestic product rose 6.2 percent in the third quarter compared to the same period last year, down from 6.4 percent in the second quarter but meeting the analysts’ growth expectation for Southeast Asia's biggest economy.
Though rapid economic growth, along with strong credit expansion and a worsening current account, have led to concerns among some investors that Indonesia’s economy is overheating, analysts feel there is no need to worry.
“Even though the pace of economic growth has picked up recently, strong growth on its own does not mean the economy is overheating. Big improvements to the business environment, a rising investment rate and a more stable political environment are the main reasons behind the faster growth rate. We believe the economy is currently growing at its potential rate,” Capital Economics said in a note.
One worrying aspect has been the current account deficit which rose to $6.9 billion in the quarter ending June 30, from $3.2 billion in the first three months of the year. But Indonesia is expecting to narrow this down by means of its increasing trade surplus which rose to $550 million in September up from $250 million in the previous month.
Meanwhile, Indonesia’s manufacturing activity continued to expand in October giving signs of economic growth momentum. According to the HSBC Purchasing Managers Index released earlier this month, the reading of the PMI, a measure of the manufacturing sector activity, rose to 51.9 in October, up from 50.5 in September. Releasing the PMI, Markit noted that production at the manufacturing companies in Indonesia increased during October at the fastest rate in 12 months.
Last month, BI kept its reference rate on hold at 5.75 percent citing that the country is well-placed to withstand the impact of weaker global demand. Market participants sense that there is a chance that BI may hike rates next year in response to rapid credit growth and the worsening current account.