Indonesia's economy expanded at a slower pace in the second quarter but grew more strongly than expected, as consumer spending, public- and private-sector investment helped offset broader headwinds.
Southeast Asia's largest economy grew 5.29% from a year earlier in the April-June period, slowing from 5.61% in the first quarter, data from the country's statistics agency showed Wednesday. The reading beat the median forecast of 5.1% growth from seven economists polled by The Wall Street Journal.
From the previous quarter, gross domestic product increased 3.73%.
The electricity and gas supply sector led growth, expanding 10.81% as electricity sales increased across nearly all consumer segments, said Statistics Indonesia official Moh. Edy Mahmud.
The accommodation and food-and-beverage sector grew 10.60%, while manufacturing--the largest component of Indonesia's economy--expanded 4.52% from a year earlier.
Household consumption was the largest contributor to GDP by expenditure, followed by investment and government spending. Growth was supported by stronger consumer spending during national holidays and religious festivities, as well as increased public- and private-sector investment, he said.
The slowdown came amid volatility stemming from the continuing Middle East conflict and domestic uncertainty, including the surprise departure of Bank Indonesia Gov. Perry Warjiyo and mounting scrutiny of the government's economic policies and fiscal discipline.
These uncertainties could prompt businesses to adopt a wait-and-see approach, while attention has shifted to the appointment of Bank Indonesia's next governor. Acting Gov. Destry Damayanti is likely to ensure near-term policy continuity, given her role in shaping the central bank's policy framework since 2019.
Still, markets will closely scrutinize the appointment of a permanent governor and Bank Indonesia policy meeting this month for signs of any shift in policy priorities and the central bank's commitment to supporting the rupiah.
Economic growth is expected to slow as higher interest rates weigh on consumption and investment, while tighter fiscal policy and higher energy prices could add pressure, Capital Economics economist Gareth Leather said in a note.
"The shift towards more interventionist policymaking, and President Prabowo's willingness to undermine the guardrails of macroeconomic orthodoxy, has dented investor sentiment and could also weigh on activity," he said.
Despite uncertainty surrounding the official GDP data, Bank Indonesia's immediate priority remains supporting the rupiah, with interest rates likely to remain on hold in the coming months, Leather added.