Business

Indonesia's economy grows driven by high consumption

Media playback is unsupported on your device
Media captionThe BBC's Karishma Vaswani reports from Jakarta on why Indonesia has been one of Asia's best performing economies in recent years and on fears that rising food prices could derail growth.

Indonesia's economy continued to grow rapidly - despite a weak global economic outlook - helped by domestic spending and investment.

Gross domestic product rose 6.5% in the three months to September, compared to a year earlier, the Central Bureau of Statistics said.

Indonesia's economy grew at its fastest annual rate for six years in 2010.

Unlike export-driven nations, there have not been signs of a slowdown in Indonesia's growth in recent months.

Consumption accounts for nearly 60% of Indonesia's economy. It's continued strength was shown in car sales and loan growth, which remained robust in the three months to September.

"The performance of domestic and private consumption has stayed intact, while third quarter exports have not shown an impact from the [global] crisis," said David Sumular from Bank Central Asia in Jakarta.

Rate cut?

However, some analysts warned that the strong growth figures may not be enough to prevent a cut in interest rates, given the European debt crisis and the struggling US economy.

The central bank lowered rates last month for the first time in more than two years, to try and maintain a high rate of growth.

"If Bank Indonesia is consistent with the reasons for which it cut the rate last month, now it is more evident that room for another cut is wide open, due to low inflation," said Andry Asmoro from Bank Mandiri.

"Bank Indonesia expects low inflation next year, so it's preparing to support growth to boost private consumption and to replace any fall of foreign direct investment with domestic direct investment."

Bank Indonesia governor Darmin Nasution has said that there is room for another cut in the cost of borrowing.

Other countries in the region and elsewhere have already taken similar steps.

More on this story