- GDP rises 5.72%, below forecast
- GDP up 1.81% q/q nsa, vs 1.62% in poll
- Investment, govt spending improve
- Global tightening, lofty inflation to cloud outlook
JAKARTA, Nov 7 (Reuters) - Indonesia's economy expanded at its fastest pace in more than a year in the third quarter, underpinned by improved investment and government spending, but economists warned of tougher times ahead.
Southeast Asia's largest economy grew 5.72% year-on-year, according to data from Statistics Indonesia. That was up from a 5.44% pace in the second quarter but below the 5.89% expansion forecast in a Reuters poll of economists.
Unadjusted for seasonal factors, gross domestic product (GDP) rose 1.81% from the previous three months, above the 1.62% increase forecast in the poll.
Investment grew at its fastest pace in over a year, private consumption remained robust, government spending shrank more slowly, and exports rose in the double-digits even as their net contribution to GDP fell as imports also increased.
"Economic growth in Indonesia accelerated in the third quarter, but this is likely to be as good as it gets," said Gareth Leather, senior Asia economist at Capital Economics.
"We expect lower commodity prices, tighter monetary policy and elevated inflation to drag on growth over the coming quarters."
While Indonesia's economy has seen an export boom this year, analysts expect a bleaker outlook as tightening monetary policy and rising inflation globally risk derailing the world economy.
At home, Bank Indonesia has raised interest rates by a total of 125 basis points since August to contain inflation, which hit a seven-year high in September after the government raised subsidised fuel prices that month.
Growth accelerated in the manufacturing, transport, warehousing and hospitality industries, the data also showed.
MORE RATE HIKES EXPECTED
Investment expanded 4.96% annually in the third quarter - at its fastest pace in over a year - while government spending shrank 2.9%, slowing from a 5.2% contraction in the previous quarter, the data showed.
Private consumption, which accounts for over half of GDP, expanded 5.4%, underpinned by increased spending by middle and upper income groups, and little changed from 5.5% growth in the second quarter.
Exports expanded nearly 22% year-on-year in the third quarter, picking up pace from growth of just under 20% in the April-June quarter. Indonesia expects to post the country's largest ever export earnings in 2022 as the resources-rich country has benefited from rising commodity prices.
DBS Bank economist Radhika Rao said the GDP data reinforced the case for BI rate hikes, forecasting 75 basis points worth of rate hikes still in the current tightening cycle.
"A comfortable growth backdrop provides the central bank the headroom to focus on inflationary expectations and keep currency underperformance in check through further rate hikes," Rao said.
The rupiah has fallen 9% against the U.S. dollar this year, buoyed by the Federal Reserve's aggressive monetary tightening.
Finance Minister Sri Mulyani Indrawati has said the government would work to maintain Indonesia's position as a relative "bright spot", but warned about the impact of a potential global recession.
The government has repeatedly said it expects to achieve its GDP growth target of 5.2% this year.
Reporting by Gayatri Suroyo and Fransiska Nangoy; Additional reporting by Stefanno Sulaiman; Editing by Martin Petty and Ana Nicolaci da Costa