Second-quarter economic growth may be faster than the first-quarter pace of 6.3 percent, spurred on by domestic consumption as fuel prices declined and the government spending increased, the finance minister said.
The government set a 6.5 percent target growth this year, despite economist warnings about the slowing global economy.
“Our past experience shows that the second, third, and fourth quarter economic growth will get better,” Finance Minister Agus Martowardojo said on Wednesday.
Agus said domestic consumption, which accounts for 54 percent of the economy, continued to be strong, along with declining inflation and falling global oil prices. The government, he said, is still confident Indonesia will be able to reach the revised state budget’s target growth for 2012, as it will accelerate budget disbursement for more infrastructure financing later this year.
“This will be very crucial as we begin to feel the impact of slowing economy in the US and Europe,” Agus said.
“We also plan to raise minimum taxable income threshold, which in turn will drive the economy further.”
The plan is that, with the minimum threshold at Rp 24 million ($2,500) a year, up from Rp 15.8 million now, people will have more money to spend. The last time government raised the threshold was in 2009, as part of a $7 billion stimulus package. Indonesia grew 4.5 percent that year, being one of a handful of countries to show growth.
Bank Indonesia, the central bank, has forecast the economy to expand 6.4 percent in the April-June period.
“But there is still a downside risk of the crisis in Europe impacting Chinese and Indian economies,” said Perry Warjiyo, the executive director of economy research and monetary policy at Bank Indonesia. The central bank projected that Indonesia would grow by 6.2 percent to 6.7 percent this year.
Eric Alexander Sugandi, economist at the Standard Chartered Bank, was less upbeat, projecting 6.1 percent growth in the second quarter. Government measures to raise the minimum taxable income threshold will boost domestic consumption, Eric said, but government spending on infrastructure will create more jobs.