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View all search resultsSlow investment growth taints Indonesia's strong GDP report
Slow growth in gross fixed capital formation points to problems in the real sector, analysts say, though they disagree on how big a problem that is.
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Traffic flows along a Jakarta thoroughfare on July 26, 2022. (AFP/Bay Ismoyo )
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low growth in gross fixed capital formation (GFCF), or investment, points to problems in the real sector, analysts say, though they disagree on how big an issue that is for Indonesia’s economy.
The country’s gross domestic product rose 5.31 percent last year, Statistics Indonesia announced on Monday, marking the fastest annual increase in economic output since 2013.
However, a closer look at the individual GDP components reveals that the GFCF underperformed with a year-on-year (yoy) increase of just 3.87 percent, which is a bit higher than the 3.8 percent seen the preceding year, but it remains significantly below the pre-pandemic level. In 2019, for instance, it was 4.45 percent.
While government spending performed even worse last year with a yoy decline, the slowdown in GFCF growth is arguably more alarming, as it reveals a lack of confidence among businesses about their economic prospects.
In a nutshell, the GFCF is the accumulation of spending for capital goods with more than one year of usage. It reflects investment in productive assets like housing and non-housing buildings, physical infrastructure such as roads and airports, machinery and equipment.
Finance Minister Sri Mulyani said GFCF growth was supported by the government's continuous efforts to develop downstream industries, which required large investments for productive purposes.
"Meanwhile building construction, which is the biggest contributor to the GFCF, is growing at a relatively moderate [pace] amid the high price of building materials and sluggish property sales, especially for office buildings and upper-class residential [buildings]," the minister said in a statement on Tuesday.
