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Economy

Indonesia GDP shows weakest growth in over two years

More stimulus likely as Southeast Asia's largest economy slows to 5.02% for Q3

Jakarta's skyline: Indonesia's third-quarter growth was broadly in line with market estimates. (Photo by Kosaku Mimura)

JAKARTA (Reuters) -- Indonesia's economic growth slipped to its weakest in over two years, broadly meeting expectations, data showed on Tuesday, signaling more monetary or fiscal stimulus is on the cards over coming months to spur demand knocked by a global slowdown.

Gross domestic product rose 5.02% in the three-months ended September from the year-ago quarter, the weakest pace since the second quarter of 2017, the statistics bureau reported.

The figure was close to the 5.01% growth expected in a Reuters poll and compared with the 5.05% expansion in the second quarter.

Though Indonesia - Southeast Asia's largest economy - relies more on domestic demand, its growth has also been hurt by slowing global trade as the U.S.-China tariff dispute shattered its exports. That in turn has dented consumer sentiment and overall domestic consumption.

"The global economy is full of uncertainty and this affects many countries. So even though 5.02% is a slowdown, it's not as steep as other countries," Suhariyanto, the statistics bureau chief, told a news conference.

The rupiah firmed up slightly after the data from 14,020 a dollar to 14,000 by 0438 GMT. The main stock index climbed to 6,216 from 6,201 before the announcement.

President Joko Widodo, who won reelection in April promising more investment opportunities, is under pressure to avoid a sharp downturn.

However, Widodo, who has been warning his cabinet members of the risks of a global recession, has little headroom to open the fiscal spigot as the government's income has been hit by weak corporate earnings and the broader slowdown.

The central bank has cut interest rates four times by a total of 100 basis points since July and is expected to ease again in coming months.

In the third quarter, growth in household consumption, which makes up over half of Indonesia's GDP, eased slightly to 5%, from 5.2%, held up by spending related to the Eid al-Fitr Islamic festival.

Government spending and investment growth also slowed in the July-September quarter compared with the previous three months.

"Drivers of growth showed deceleration in all productive engines, while the drop in import have helped held overall economic growth afloat," said Wisnu Wardana, Jakarta-based Bank Danamon's economist.

"Given such result and outlook, we think policymakers will want to utilize all possible instruments at hand to support growth," he said, adding that fiscal policy will be on the spotlight as the central bank had already cut rates several times.

The government in August downgraded 2019 growth to 5.08%, down from 5.17% last year, meaning it would mark the first annual deceleration for the economy in four years. Officials expect GDP growth to recover to 5.3% in 2020, a target some economists say is too optimistic.

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