Investments in Indonesia Continue to Slow; Government Revises Target
Growth of Gross Fixed Capital Formation (GFCF) in Indonesia has continued to slow down in the first six months of 2013. In the first quarter of 2013, GFCF rose 5.78 percent but in the second quarter the pace fell to 4.67 percent. These results are much lower than last year's quarterly growth rates as can be seen in the table below. In fact, the growth rate in Q2-2013 constitutes the lowest growth rate in the last 13 quarters. In Q2-2013, all sectors experienced weakening investments except for domestic machinery and equipment.
Growth of Gross Fixed Capital Formation (YoY, %):
| Quarter I |
Quarter II | Quarter III | Quarter IV | |
| 2013 |
5.78 | 4.67 | ||
| 2012 | 9.97 | 12.47 | 9.80 | 7.29 |
| 2011 | 7.25 | 9.10 | 7.07 | 11.52 |
| 2010 | 7.95 | 8.01 | 9.22 | 8.67 |
| 2009 | 3.45 | 2.34 | 3.22 | 4.12 |
Source: Statistics Indonesia (BPS)
Sources of GFCF Growth (YoY, %):
| 2012 Q I |
2012 Q II |
2012 Q III |
2012 Q IV |
2013 Q I |
2013 Q II |
|
| Construction |
1.25 | 1.29 | 1.35 | 1.45 | 1.23 | 1.22 |
| Domestic Machinery and Equipment | 0.02 | 0.02 | 0.01 | 0.03 | 0.00 | 0.02 |
| Foreign Machinery and Equipment | 0.62 | 0.82 | 0.48 | 0.18 | 0.00 | -0.14 |
| Domestic Transport Equipment | 0.03 | 0.08 | 0.06 | 0.11 | 0.08 | 0.04 |
| Foreign Transport Equipment | 0.36 | 0.64 | 0.35 | 0.08 | 0.00 | -0.06 |
| Other (Domestic) | -0.01 | -0.01 | 0.05 | 0.09 | 0.10 | 0.12 |
| Other (Foreign) | 0.08 | 0.13 | 0.09 | -0.03 | 0.00 | -0.01 |
Source: Statistics Indonesia (BPS)
The slowdown in investments in 2013 had already been expected as imports of capital goods have been weakening since the end of 2012. Although these imports rose in April 2013, they fell again in June. According to data from Statistics Indonesia (BPS), imports of capital goods totaled USD $5.5 billion in Q2-2013, which implies a 46.4 percent decline compared to the result in Q2-2012.
Foreign direct investments (FDIs) have also weakened. The Indonesia Investment Coordinating Board (BKPM) said that the growth rate of FDIs in Q2-2013 fell to 18.9 percent from 30.2 percent in Q2-2012. FDIs account for about 15 percent of total GFCF.
The weakening of investments in Q2-2013 made Finance Minister Chatib Basri decide to revise its investments growth target rate for 2013. Previously, GFCF was forecast to grow 11.9 percent. Now, however, the target has been revised to 5.5 percent. Basri also said that it will be difficult to meet the government's GDP growth target of 6.3 percent in 2013 as has been set in the State Budget. As investments (after domestic consumption) are the engine of Indonesia's economic development, the country will feel the impact of slowing investments. In the last three years, investments contributed around 32 percent to Indonesia's GDP.