(Bloomberg) -- Indonesia’s economic growth slowed last quarter as a spate of factory closures and job cuts weakened consumption and investment, underscoring the challenges facing newly inaugurated President Prabowo Subianto.
Gross domestic product expanded 4.95% in the three months through September from a year earlier, trailing the 5% median estimate of 32 economists in a Bloomberg survey. Thats the slowest quarterly pace since the 4.94% expansion posted in the same period a year ago.
Subianto is aiming to boost growth to as high as 8% during his five-year term at the helm of Southeast Asia’s largest economy. While Indonesia’s growth stands out as among the fastest in the region, the cracks emerging in its manufacturing sector could jeopardize employment and consumer spending that are critical to the $1 trillion economy.
Labor-intensive industries, particularly apparel and footwear, have been suffering from a sharp decline in overseas demand and an influx of cheaper imports flooding the domestic market. The sector has seen a rising number of factory closures and debt distress, such as with textile giants PT Sri Rejeki Isman, also known as Sritex, and PT Pan Brothers.
Job cuts in Indonesia rose by 31% from a year ago as of October, reaching nearly 60,000, according to previously released labor ministry data. Manufacturing activity has also contracted for four consecutive months, its longest slump since at least 2021, based on the S&P Global purchasing managers’ index.
That comes at a precarious time when many Indonesians have yet to regain formal employment after the pandemic. About 9.5 million people have fallen out of the country’s middle class — a crucial driving force behind domestic consumption that makes up more than half of GDP.
The government has unveiled a number of measures in response, including extending tax perks for house purchases and imposing import duties to protect the local market.
Bank Indonesia has also started to lower its benchmark interest rate to help bolster spending and investment, but its easing campaign has been put on hold amid currency volatility. In the meantime, it’s expanded incentives to banks lending to labor-intensive businesses.
Indonesia will need to reorient its industrial policy towards developing export-oriented service industries for the economy to grow beyond 5%, Citigroup Inc. economist Helmi Arman wrote in a note before Tuesday’s data. Refining raw metals onshore — a priority of Prabowo and his predecessor Joko Widodo — has helped boost growth but hasn’t created enough jobs, he said.
“Services exports like tourism are more labor intensive and may generate more FX conversion,” Arman said. “Yet emphasis on this hasn’t yet been seen in the government programs.”
(Adds GDP data in first and second paragraphs, rewrites)
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