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Indonesia posts slowest GDP growth since 2009

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Media captionIndonesia's economy will be a key issue in its upcoming elections

Indonesia has posted its slowest pace of economic growth since 2009, which may put pressure on the government ahead of July's presidential elections.

Southeast Asia's biggest economy expanded by 5.2% in first three months of the year, which was below the median forecast for 5.6% growth.

The weaker-than-expected data follows a series of aggressive interest rate hikes by the country's central bank.

Indonesia's economy has also been impacted by slowing foreign investment.

"The general trend in Indonesia over the past couple of years has been one of slowing growth," Daniel Martin from Capital Economics said.

With tight monetary policy weighing on the economy, the weakness looks set to last."

Election issue

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Image caption Indonesia has about 60 official trade unions with more than 10 million members

The health of Indonesia's economy is set to be a crucial issue with voters.

Thousands of Indonesian workers have been calling for higher wages and better social benefits to match rising living costs.

The country is also struggling to contain a widening gap between the rich and the poor, a problem the United Nations has warned could trigger social unrest.

To boost growth, the government has recently eased foreign investment restrictions on industries such as pharmaceuticals and power generation.

After months of delays, the government revised its so-called "negative investment list" which had prevented foreign firms from entering sectors considered sensitive.

However, many investors remain concerned about nationalistic economic policies that may hurt business.

Indonesia's foreign investment growth in the first quarter slowed to its lowest level in nearly five years following a government ban in January on raw mineral ore exports.

"Investors have just become less positive about the business environment over the last couple of years," Mr Martin said.

"The government seems to have lost its way in terms of the direction of policy. A nationalistic slant has crept in, and the anti-corruption drive has stalled."

Economic stimulus

Indonesia's central bank will also be meeting this week but is expected to keep interest rates steady at 7.5%.

It has not changed borrowing costs since it raised interest rates five times between May and November of last year.

Those rate increases were prompted by worries that emerging markets were suffering a sudden decline of finance and credit.

Indonesia's rupiah lost almost 20% of its value against the US dollar during that slump in confidence.

Investors had pulled their money out of the country in response to the end of a US stimulus program known as "quantitative easing".

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