Indonesia sees 5.17pc quarterly growth, eyes huge FDI in solar systems production

Southeast Asia’s largest economy is aiming at net-zero emissions before 2060

JAKARTA (Reuters/Web Desk) – Four foreign renewable energy companies said on Monday they will jointly explore opportunities to produce solar panel components and energy storage systems in Indonesia as the Southeast Asia largest economy grew in the second quarter accelerated unexpectedly to its highest rate in the last three.

Singapore-based Vena Energy, China's Suntech and REPT Battero, and US-based Powin aim to produce components of solar photovoltaic panels and energy storage systems, which will also be used in Vena Energy's solar project in Indonesia's Riau Islands.

The solar power plant will have a capacity of up to two gigawatts and battery systems with a potential storage capacity of more than eight gigawatt hours, the companies said in a statement.

Vena Energy chief executive Nitin Apte said the investment would reach billions of dollars, according to news website Bisnis.com.

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Indonesia is aiming to reach net-zero emissions before 2060 and wants to boost its use of renewable energy to do so. More than half the country's power demand is currently sourced from coal, of which it is a major global producer.

On the other hand, the boost in Indonesia's economic growth in the second quarter was shored up by strong household and government spending, and despite its exports weakening amid falling commodity prices.

However, some economists still expect activity to slow in the second half of the year, with exports likely to fall due to weaker global demand and businesses potentially delaying investments ahead of general elections due in February 2024.

Its biggest economy expanded 5.17 per cent in the April-June quarter from the same period a year earlier, Statistics Indonesia data showed, outpacing the 4.93pc growth predicted by economists polled by Reuters. First-quarter growth was revised up slightly to 5.04pc.

On a quarterly, non-seasonally adjusted basis, GDP expanded 3.86pc, compared with the poll's prediction of 3.72pc growth. A commodities-led export boom last year boosted Indonesia's post-pandemic recovery, but analysts expect momentum to cool as prices for its top products, like palm oil and coal, fall as global demand weakens on interest rate hikes in many countries.

Despite Indonesia's own monetary tightening of 225 basis points from August 2022 to January 2023, household consumption, which makes up over half of GDP, expanded 5.23pc on a yearly basis last quarter, the quickest pace since the third quarter of 2022.

That was due to rising household spending for the Muslim fasting month and Eidul Fitr festivities in late April and school holidays in June, the statistics bureau said.

Growth in investment and government spending also more than doubled to 4.63pc and 10.62pc, respectively, as the government expedited construction of roads and irrigation systems ahead of the end of President Joko Widodo's final term in 2024.

Meanwhile, exports contracted 2.75pc in the second quarter on a yearly basis, in stark contrast to last quarter's growth of more than 10pc.

Myrdal Gunarto, economist with Maybank Indonesia, said he might raise his bank's full-year 2023 GDP growth outlook of 5.05pc, but described the second quarter data as "a sign that economic activities had peaked".

Myrdal said companies would likely pause investment decisions ahead of the elections, pointing to slower loan growth already in June.

The better-than-expected data may spur monetary policymakers to shift their focus from growth to the current account, as strong domestic demand typically leads to rising imports, said Fakhrul Fulvian, economist with Trimegah Securities, who maintained his full-year 2023 GDP growth outlook at 5pc.

Indonesia has reported a current account surplus every quarter from the July-September period of 2021 due to the export boom, helping the rupiah perform better than most other emerging Asian currencies against the US dollar.

The rupiah fell 0.1pc against the dollar on Monday.

"2Q GDP outcome aligns with the BI's (Bank Indonesia) constructive view on the economy's growth prospects, providing them with the room to extend the pause on rates and focus on currency stability," said Radhika Rao, economist with DBS Bank.

Last year's growth was 5.3pc, a nine-year high. The government is targeting the same growth rate for 2023. The central bank predicts GDP will expand in a range of 4.5pc to 5.3pc this year.