Indonesia′s Economy to Grow 6.2% in 2013: World Bank

25 March, 2013 | Source: The Jakarta Globe

The World Bank on Monday cut its growth forecast for Indonesia to 6.2 percent this year, from its 6.3 percent estimate in December, citing an expected moderation in domestic investment growth.



"Investment will...continue to be a key source of growth but is expected to moderate somewhat from its rate of increase in 2012, as indicated by the slower pace of imported capital goods spending," the World Bank said in its quarterly economic outlook for Indonesia.

Growth in capital imports has been declining since early 2012, with capital imports down by 12.1 percent year-on-year in January 2013. Analysts say the fall in capital goods imports is partly due to the weakness in commodity prices, which has led to lower investment in mining and oil sectors.

Indonesia′s resilience to the global economic slowdown has continued to attract foreign investment in recent years, but the country′s first annual trade deficit in 2012 has put pressure on the rupiah currency.

As in much of the region, strong domestic demand has helped cushion the economy from the worst of the global downturn. The central bank has said it expects the current account to improve in the first quarter of this year, as exports are seen picking up with an economic recovery in major markets such as China and the United States.

Inflation in Southeast Asia′s largest economy is expected at 5.5 percent this year and 5.2 percent in 2014, the World Bank projected.

The country′s headline inflation hit a 20-month high of 5.3 percent in February, the statistics bureau said earlier this month, after restrictions on some food imports pushed prices higher.

"The outlook for CPI inflation is dominated by the risk of upside pressures from policy decisions relating to minimum wages, trade restrictions on foods, as well as the temporary effects of electricity tariff subsidy reform," the World Bank said.

Indonesia has managed to contain inflation by continuing to subsidize fuel costs, though that has meant heavy government spending on subsidies.

Many economists say the subsidies must be cut, but President Susilo Bambang Yudhoyono is reluctant to take this measure, especially with national elections due next year.

The World Bank estimated a fiscal deficit of 1.9 percent of Indonesia′s GDP in 2013 due to higher projected fuel subsidy spending and potentially weaker revenue collection.
 

 

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