Indonesian growth forecast looks good

"Growth in the third quarter is likely to reach 6.2 percent to 6.3 percent [year-on-year]," Agus said on the sidelines of a hearing with lawmakers, lending credence to investors' bullish expectations.

Household consumption, the backbone of the economy, is projected to grow at a steady pace while investment, which saw a rapid decline during the global financial crisis, is expected to recover this year and help push the economy even higher, he said.

"Investment in Indonesia has the potential to grow and play a more important role in driving the overall economy over time," said DBS Bank economist Ma Tieying in the bank's quarterly report, titled Economics Markets Strategy.

"Market expectations for investment growth are high. Indonesia is widely believed to possess the potential to attract foreign direct investment inflows due to natural advantages of a large and young population pool and cheap labor costs.

This attractiveness is further enhanced in view of the recent pressure for wage increases in China and the related push to explore lower-costs production bases as substitutes in the regions," she wrote.

Growth in Indonesia, Southeast Asia's largest economy, continued to accelerate in the second quarter, posting a 6.2 percent year-on-year increase, the Central Statistics Bureau (BPS) said in August. It was the strongest growth since September 2008.

The economy grew 5.7 percent in the first quarter from the same time a year ago. BPS is scheduled to release third-quarter data in the middle of this month.

The government is projecting 5.8 percent growth for 2010 and 6.4 percent growth next year.