Indonesian growth slowest since 2010

A protester holds a jerrycan during a demonstration against the government's plans for hiking fuel prices in Jakarta, June 19, 2013.

JAKARTA - Indonesian growth slipped below six per cent last quarter for the first time since 2010 as global weakness weighed on Southeast Asia's top economy, official data showed Friday.

The figures highlighted the challenge for policymakers as they seek to maintain strong growth while battling a surge in inflation sparked by a fuel price hike and stopping recent steep falls in the rupiah.

GDP was 5.81 per cent in the three months to the end of June year-on-year, below economists' expectations, according to data from the Central Statistics Agency.

It was the slowest pace of growth since the third quarter of 2010 and compares with revised growth of 6.03 per cent in the January to March quarter.

Statistics chief Suryamin, who like many Indonesians goes by one name, pointed to external factors such as slowing demand for exports and a fall in investment.

"The global economy is slowing, so Indonesia is also slowing," he said.

Long a bright spot in the global economy, Indonesia's growth has been weakening as demand for its major commodity exports, such as coal and palm oil, has slowed, particularly from powerhouse China.

The country's trade deficit widened to $850 million in June from $590 million in May due to weak demand for exports, according to official data released this week.

Credit Suisse also noted investment growth slipped to a three-and-a-half-year low in the second quarter.

But the central bank has little room to loosen monetary policy as it seeks to halt surging inflation that threatens to dent consumer spending, a key motor of the economy as the middle class rapidly expands.

Inflation hit a four-year high in July after the government raised the price of fuel by up to 44 per cent.

Bank Indonesia hiked its key interest rate by 75 basis points at its last two meetings to keep a lid on rising prices -- but the move will likely hit already slowing growth, economists have warned.

While consumer spending was stable in the first half, analysts warned it would be hit by rising inflation in the second half.

"The downturn in investment spending is likely to spread to private consumption growth in a more meaningful way given the recent subsidised fuel price hike," said Robert Prior-Wandesforde from Credit Suisse.