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Home  >>   Daily News  >>   Indonesia News  >>   Economy  >>   Indonesian slows but robust 6.1% growth expected in 2012
NEWS UPDATES Asean Affairs    26 May 2012

Indonesian slows but robust 6.1% growth expected in 2012

24 May, 2012

Domestic consumption and investment will continue to drive robust growth in Southeast Asia’s largest economy, despite a slowdown in Indonesia’s economic growth in the first quarter, the World Bank said.

In a recently released forecast, the World Bank said that Indonesia’s economy would grow 6.1 per cent in 2012, down from 6.5 per cent last year and lower than the government’s 6.7 per cent target.

The country’s economy slowed to 6.3 per cent in the first quarter of 2012 on a year-on-year basis, which was consistent with weakening global demand, it said.

"Our forecast reflects weakness in the global environment. The performance in the first quarter is a downward move that is in line with our forecast,” Ashley Taylor, the World Bank’s country economist for Indonesia, told a press briefing.

"In terms of what’s happening in the world, this is still very strong growth,” Taylor said.
The eurozone debt crisis, a stalling economic recovery in the US and slowing economic growth in China have created uncertainties in the global economy and weakening global demand, Taylor added.

"Obviously Indonesia could be affected through trade and financial channels. But the impact will be less than in other countries,” Taylor said, citing the country’s diversified market for exports.

Export growth has slowed down in Indonesia, a domestic consumption-reliant economy, which has affected overall economic growth. However, strong domestic consumption and accelerating investment have offset weaker exports.

The World Bank projected annual growth in East Asia and Asia-Pacific to moderate further to 7.6 per cent, with slower expansion in China pulling down the regional aggregate, according to its latest report, published on Wednesday.

That compares with 8.2 per cent growth last year and nearly 10 per cent in 2010 – rates that the Bank considered “impressive on a global scale”, according to the report, titled “Capturing New Sources of Growth”.

"Some countries will need to stimulate household consumption. In others, enhanced investment, particularly in infrastructure, offers the potential to sustain growth provided this does not exacerbate domestic demand pressures,” Bryce Quillin, World Bank economist and lead author of the report, said.

Commodity exporters, which experienced a boom in 2011, may be vulnerable in the event of a faster-than-anticipated slowdown in China, which accounts for 10 per cent of global exports, and trigger an unexpected drop in commodity prices, according to the report.

"Our forecast is that export growth will decline this year. There will be a downward adjustment, mainly due to external conditions and indirect impact from lower [global demand], which will bring down commodity prices,” Sjamsu Rahardja, a Jakarta-based senior economist of the World Bank, said.

Indonesia is the world’s largest exporter of thermal coal and palm oil and a key exporter of cocoa, sugar and tin.

Meanwhile, Mandiri securities economist Destry Damayanti warned the government to prepare to for a more challenging economic situation during the continued global crisis.

"Indonesia, on one side, has significant strength in cruising through the crises, because the country is supported with a strong domestic economy, rising middle-class segment, investment-grade rating rewards, sufficient foreign exchange reserves, prudent debt management and comprehensive monetary amd fiscal policies,” Destry said during a discussion yesterday.

"However, we also have several weaknesses, such as the lack of infrastructure, a fragile financial sector, low quality of human resources and the dominance of politics toward economic policies,” she added.


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