By Gayatri Suroyo and Fransiska Nangoy
JAKARTA, Aug 5 (Reuters) - Indonesia's annual economic growth slowed to its weakest pace in three quarters in the second quarter as household and government spending eased, official data showed on Wednesday, although the figure topped expectations.
Southeast Asia's largest economy has faced a crisis of investor confidence this year, fuelled by concerns over government spending as President Prabowo Subianto pushes to achieve 8% economic growth before 2030.
Gross
domestic product grew 5.29% in the April to June quarter from a year earlier, Statistics Indonesia said, above the 5.1% median forecast in a Reuters poll. Growth was 5.61% in January to March.
Finance Minister Purbaya Yudhi Sadewa told reporters that 5.29% was "not strong enough yet" and that the government aimed to accelerate expansion.
The 2026 state budget targets growth of 5.4%, while Purbaya is aiming for up to 6% this year.
GOVERNMENT SPENDING POSTS STRONGEST GROWTH
Government spending jumped 15.97% in the quarter, driven by expenditure on civil servants, although that was down from 21.81% in the first quarter.
"A sharp pick-up in public spending was a key contributor, while consumption received a hand from stimulus measures and limited pass-through of elevated global energy prices," said DBS Bank economist Radhika Rao.
Indonesia, a major commodities producer, has recorded annual growth of around 5% in most quarters since the COVID-19 pandemic. Growth is typically supported by spending around the Eid holiday season, which fell in the first quarter this year.
Investors are also watching the risk of a downgrade to Indonesia's equity market status by index provider MSCI, as well as concerns over central bank independence following last week's surprise resignation of Bank Indonesia Governor Perry Warjiyo.
The rupiah is trading near record lows against the dollar, while the stock market has lost nearly 30% this year.
Government efforts to cushion consumers from higher energy prices linked to the Iran war also boosted spending on fuel subsidies.
HOUSEHOLD SPENDING SLOWS
Household spending, which accounts for about half of Indonesia's GDP, grew 5.06% in the quarter, supported by spending on transport and hotels during school holidays. However, that was below the 5.52% growth recorded in the first quarter.
To support consumption and purchasing power, Purbaya said he planned to delay collection of a new income tax on sellers using e-commerce platforms that took effect this month.
Investment growth accelerated to 6.87% in the quarter, its fastest pace in a year.
Imports again outpaced exports, as they did in the first quarter, weighing on GDP growth.
In terms of industries, manufacturing growth slowed, while mining output contracted because of quota restrictions.
Construction recorded its strongest growth in almost two years, supported by infrastructure investment, development in industrial estates and buildings linked to Prabowo's village cooperative programme.
Economic activity could come under pressure in coming quarters after Bank Indonesia raised interest rates by 100 basis points in May and June to attract capital inflows to support the rupiah.
"We believe both the government and Bank Indonesia will need to strike a delicate balance between supporting growth and maintaining macroeconomic stability," said Bank Permata economist Faisal Rachman.
"Persistent external pressures could widen Indonesia's twin deficits, which may trigger renewed risk-off sentiment, capital outflows, and pressure on the rupiah," he said, referring to the fiscal and current account deficits.
"These risks are likely to constrain the economy's ability to sustain stronger growth momentum going forward," he added.
(Reporting by Gayatri Suroyo, Fransiska Nangoy, Stefanno Sulaiman, Bernadette Christina. Editing by David Stanway, Clarence Fernandez and Mark Potter)
