Indonesia's economy grew more than 6 percent for a sixth quarter as the lowest borrowing costs in three years spurred demand for homes and exports advanced on higher prices of coal and palm oil.
Gross domestic product in Southeast Asia's biggest economy expanded 6.28 percent in the three months ended March 31 from a year earlier, compared with 6.25 percent in the fourth quarter, the statistics bureau said today in Jakarta. The median forecast of 17 economists surveyed by Bloomberg News was 6.20 percent.
Private consumption, which accounts for about 70 percent of the economy, may cool amid plans by the government to raise fuel prices by as much as 30 percent to cut government outlays. Spending may also drop after Bank Indonesia raised borrowing costs for the first time in more than two years to tame the fastest inflation in 19 months.
"Companies in the consumer sector will be hit,'' Destry Damayanti, chief economist at PT Mandiri Sekuritas in Jakarta. "Higher inflationary pressures have dampened people's purchasing power.'' She expects growth to slow to 5.9 percent this year after a 6.3 percent expansion in 2007.
Welfare Minister Aburizal Bakrie said yesterday that fuel prices will probably be increased 30 percent after the government completes a plan to compensate 19.1 million poor families for lost income on May 23.
President Susilo Bambang Yudhoyono, facing elections next year, wants to thwart protests from the poor, who are already paying more for staples such as noodles and cooking oil.
Rising prices of coal, palm oil and tin helped boost exports by 15 percent, the fastest pace since the last quarter of 2004. Prices of power-station coal shipped from Newcastle, Australia, the world's biggest export harbor for the fuel, reached an 11- week high in the week ended May 9 at $133.6 a metric ton.
Private Spending
Private consumption expanded 5.5 percent in the first quarter, almost matching the previous period's 5.62 percent, which was the fastest since the first quarter of 2004. Government spending grew 3.6 percent in the quarter, and investment rose 13.3 percent, the statistics bureau said.
"Six quarters of above 6 percent growth is comfortably the longest period of strength since the Asian crisis and enough we think to be contributing to the sharp pickup in inflation,'' said Robert Prior-Wandesforde, a senior economist at HSBC Holdings Plc in Singapore. "It's not impossible that inflation will hit 15 percent or so in the next few months.''
Lehman Brothers Holdings Inc. expects higher fuel prices to drive year-on-year inflation to 12 percent in June from 8.2 percent in April.
Accelerating inflation and the proposed fuel price increase may slow sales of cement and motorcycles this year.
Cement, Autos
"We expect there will be a decline in cement sales in the second half of the year as the impact of the fuel price increase is felt" said Urip Timuryono, chairman of the Indonesian Cement Producers Association in Jakarta. "Companies will finish ongoing construction projects but they are unlikely to start new ones.''
Cement, auto and consumer-related companies were among those to benefit most from Bank Indonesia's 4.75 percentage points of rate cuts from May 2006.
Indonesia's construction industry expanded 8.3 percent in the quarter from a year earlier. Manufacturing grew 4.3 percent in the period.
Car sales increased 47 percent to a three-year high last month. Revenue at HeidelbergCement AG's unit PT Indocement Tunggal Prakarsa rose to a record 7.3 trillion rupiah last year.
"People are more cautious now in buying homes,'' said Hendra Sugandi, a director at PT Lippo Karawaci, Indonesia's biggest publicly traded real estate developer by assets.
Indonesia is raising fuel prices to lower a subsidy bill estimated at about 14 percent of total government revenue.
Budget Deficit
Crude oil prices have risen 30 percent this year, increasing the burden on the government, which has kept local gasoline, diesel and kerosene prices steady for almost three years.
Concern the deficit would widen partly explains why Indonesian bonds have handed holders a loss of 8.8 percent this year, the worst performance of 10 Asian local-currency debt markets, according to indexes compiled by HSBC Holdings Plc.
The last time investors lost faith in the government's ability to curtail its budget deficit in the face of rising fuel costs, investors dumped Indonesian assets, causing the rupiah to tumble 7 percent to a four-year low in August 2005.
The government more than doubled fuel prices a month later that year and Bank Indonesia increased borrowing costs to 12.75 percent to stem inflation.
Gross domestic product rose 2.15 percent in the three months ended March 31 from the fourth quarter. Economic growth may slow to 6 percent in 2008 from 6.3 percent last year as private consumption will decline, Finance Minister Sri Mulyani Indrawati said on May 6.
Gross domestic product in Southeast Asia's biggest economy expanded 6.28 percent in the three months ended March 31 from a year earlier, compared with 6.25 percent in the fourth quarter, the statistics bureau said today in Jakarta. The median forecast of 17 economists surveyed by Bloomberg News was 6.20 percent.
Private consumption, which accounts for about 70 percent of the economy, may cool amid plans by the government to raise fuel prices by as much as 30 percent to cut government outlays. Spending may also drop after Bank Indonesia raised borrowing costs for the first time in more than two years to tame the fastest inflation in 19 months.
"Companies in the consumer sector will be hit,'' Destry Damayanti, chief economist at PT Mandiri Sekuritas in Jakarta. "Higher inflationary pressures have dampened people's purchasing power.'' She expects growth to slow to 5.9 percent this year after a 6.3 percent expansion in 2007.
Welfare Minister Aburizal Bakrie said yesterday that fuel prices will probably be increased 30 percent after the government completes a plan to compensate 19.1 million poor families for lost income on May 23.
President Susilo Bambang Yudhoyono, facing elections next year, wants to thwart protests from the poor, who are already paying more for staples such as noodles and cooking oil.
Rising prices of coal, palm oil and tin helped boost exports by 15 percent, the fastest pace since the last quarter of 2004. Prices of power-station coal shipped from Newcastle, Australia, the world's biggest export harbor for the fuel, reached an 11- week high in the week ended May 9 at $133.6 a metric ton.
Private Spending
Private consumption expanded 5.5 percent in the first quarter, almost matching the previous period's 5.62 percent, which was the fastest since the first quarter of 2004. Government spending grew 3.6 percent in the quarter, and investment rose 13.3 percent, the statistics bureau said.
"Six quarters of above 6 percent growth is comfortably the longest period of strength since the Asian crisis and enough we think to be contributing to the sharp pickup in inflation,'' said Robert Prior-Wandesforde, a senior economist at HSBC Holdings Plc in Singapore. "It's not impossible that inflation will hit 15 percent or so in the next few months.''
Lehman Brothers Holdings Inc. expects higher fuel prices to drive year-on-year inflation to 12 percent in June from 8.2 percent in April.
Accelerating inflation and the proposed fuel price increase may slow sales of cement and motorcycles this year.
Cement, Autos
"We expect there will be a decline in cement sales in the second half of the year as the impact of the fuel price increase is felt" said Urip Timuryono, chairman of the Indonesian Cement Producers Association in Jakarta. "Companies will finish ongoing construction projects but they are unlikely to start new ones.''
Cement, auto and consumer-related companies were among those to benefit most from Bank Indonesia's 4.75 percentage points of rate cuts from May 2006.
Indonesia's construction industry expanded 8.3 percent in the quarter from a year earlier. Manufacturing grew 4.3 percent in the period.
Car sales increased 47 percent to a three-year high last month. Revenue at HeidelbergCement AG's unit PT Indocement Tunggal Prakarsa rose to a record 7.3 trillion rupiah last year.
"People are more cautious now in buying homes,'' said Hendra Sugandi, a director at PT Lippo Karawaci, Indonesia's biggest publicly traded real estate developer by assets.
Indonesia is raising fuel prices to lower a subsidy bill estimated at about 14 percent of total government revenue.
Budget Deficit
Crude oil prices have risen 30 percent this year, increasing the burden on the government, which has kept local gasoline, diesel and kerosene prices steady for almost three years.
Concern the deficit would widen partly explains why Indonesian bonds have handed holders a loss of 8.8 percent this year, the worst performance of 10 Asian local-currency debt markets, according to indexes compiled by HSBC Holdings Plc.
The last time investors lost faith in the government's ability to curtail its budget deficit in the face of rising fuel costs, investors dumped Indonesian assets, causing the rupiah to tumble 7 percent to a four-year low in August 2005.
The government more than doubled fuel prices a month later that year and Bank Indonesia increased borrowing costs to 12.75 percent to stem inflation.
Gross domestic product rose 2.15 percent in the three months ended March 31 from the fourth quarter. Economic growth may slow to 6 percent in 2008 from 6.3 percent last year as private consumption will decline, Finance Minister Sri Mulyani Indrawati said on May 6.
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