Shoppers look at a jewelry display inside a shopping mall in Jakarta.

Indonesia’s economy grew at the fastest pace in Southeast Asia last quarter as buoyant local spending helped the nation fend off the global recession.

Indonesia has been less affected than its Asian neighbors by the worst global slump since World War II as it isn’t as reliant on exports. Singapore’s economy shrank the most since at least 1975 in the first quarter and Thailand’s Finance Minister Korn Chatikavanij expects a “pretty bloody” GDP contraction of as much as 6 percent in the same period.

“Domestic demand appears to be holding up,” said Purbaya Yudhi Sadewa, chief economist at Danareksa Research Institute in Jakarta. “The fact that growth exceeded consensus signals we have reached the bottom and we can expect growth to pick up.”

Bank Indonesia predicts the economy will expand at the higher end of its 3 percent to 4 percent range this year, central bank Deputy Governor Hartadi Sarwono said today. Goldman Sachs Group Inc. on Thursday raised its 2009 forecast to 3.5 percent from a previous estimate of 2.5 percent.

Consumer confidence

Consumer confidence in Southeast Asia’s largest economy soared to a four-year high in April, according to a central bank survey of more than 4,300 households in 16 cities. Respondents expected “relatively favorable” incomes over the next six months and were more willing to spend their money on durable goods, the Bank Indonesia survey showed.

Spending by consumers jumped 19.2 percent in the first quarter from a year earlier, according to today’s report. Investment increased 3.5 percent.

Rising confidence in Indonesia’s growth prospects, and investor speculation that demand for emerging-market assets will increase as the global economy recovers from a recession, has buoyed the nation’s stocks and the currency.

The benchmark stock index has climbed 28 percent since the start of the year and the rupiah was this week trading near the highest level in six months after Finance Minister Sri Mulyani Indrawati said May 12 that Indonesia’s economy may expand 5 percent to 6 percent next year. The Jakarta Composite index fell 1.7 percent to 1,755.01 as of 2:49 p.m. local time.

‘Recovering swiftly’

“There appears to be pockets of resilience in the economy and consumer confidence is recovering swiftly,” said Anton Gunawan, the Jakarta-based chief economist at PT Bank Danamon Indonesia. “The deceleration in economic growth is unlikely to be very severe.”

Other Southeast Asian economies are not faring as well. Vietnamese GDP expanded 3.1 percent in the three months to March 31 from a year earlier, the weakest pace since quarterly statistics were first available in 1999. The Philippine economy likely grew between 2.1 percent and 3.1 percent in the first quarter, Economic Planning Secretary Ralph Recto said April 20.

Indonesia’s US$433 billion economy may also benefit from spending on this year’s parliamentary and presidential elections, said economists including Juniman from PT Bank Internasional Indonesia in Jakarta.

President Susilo Bambang Yudhoyono’s Democrat Party won 148 seats in the 560-member House of Representatives in last month’s elections. That’s enough under Indonesian law to allow the party to pick a candidate to run in July’s presidential poll.

Interest rates

Lower borrowing costs are also encouraging consumers to spend. Bank Indonesia has cut its benchmark interest rate for six straight months, with Governor Boediono last lowering the key rate by a quarter-point to 7.25 percent on May 5, the lowest since the measure was introduced in July 2005.

Motorcycle sales in Indonesia rose in March for a second straight month, with 435,881 units sold, according to a report from the Indonesian Automotive Industries Association issued by PT Astra International.

Source: Bloomberg