Courtesy of The Financial Times, a report on Indonesia:

Is there no stopping the Indonesian consumer? Second quarter GDP figures out on Monday showed the economy growing 6.4 per cent year on year, up from 6.3 per cent in the previous quarter and a healthy chunk more than the Bloomberg consensus of 6.1 per cent.

With most of the world gripped by recession or fear of recession, Indonesia’s consumers are carrying on regardless. Household spending was up 5 per cent year on year, up from 4.9 per cent in Q1. All that demand is driving a surge in investment.

This from Capital Economics:

• Domestic demand was again the main factor driving growth. Household spending expanded by 5.0% y/y, up slightly from the 4.9% expansion recorded in the first quarter. Consumer spending is being supported by strong wage growth, rising employment and high consumer confidence. Spending may weaken slightly in the second half of the year due to rising inflation (which will eat into consumers’ purchasing power), but should remain relatively buoyant in the coming quarters.
• Investment spending was particularly strong in Q2, expanding by 12.3% y/y, up from 10.0% the previous quarter. Investment is being driven by strong business confidence and low interest rates (which have helped to fuel rapid credit growth). There are fears that a series of controversial new rules (such as a requirement for some foreign mining operators to sell 51% of their business to a local company 10 years after the start of production) could deter foreign investment. So far, however, investors have not been put off. Foreign investment actually increased by 30% y/y in the second quarter.

So, rising consumers spending based on lower interest rates, rising wages and rising investment. Sounds great. It could even be enough to tempt Foxconn, the giant Taiwanese contract manufacturer that makes iPads for Apple and laptops for Dell, to shift some of its manufacturing from China. But as Ben Bland noted for beyondbrics:

• the lack of a broad manufacturing skills base, the poor infrastructure (with regular power shortages and clogged-up roads and ports) and Indonesia’s strict labour laws and feisty trade unions could make investing here a tougher sell than China.

Indonesia has put some of the conditions for sustainable growth in place. But the job isn’t done yet.