News Room - Business/Economics

Posted on 15 Nov 2007

Indonesian economy seen up 6.4 pct in 2008 on higher investment

The Indonesian economy is expected to grow by 6.4 percent in 2008 from an estimated 6.3 percent this year, supported by higher investment and vibrant domestic demand, the World Bank said Thursday.

 

In its semi-annual report on the regional economies, the World Bank said investment in Indonesia is expected to rise next year with increased government spending, continued reforms and the impact of falling interest rates.

 

"This higher investment is expected to offset a slowdown in exports in 2008 because of slowing world demand growth due to the impact of higher oil prices, subprime debt and a US slowdown," the bank was quoted by Thomson Financial as saying.

 

The strong demand from Asia for Indonesian exports should help cushion weaker shipments to industrialized countries.

 

The bank expects Indonesia's exports to grow by 12.1 percent this year and by a further 8.4 percent in 2008. Imports are projected to increase by 12.8 percent in 2007 and by 12.4 percent in 2008.

 

Inflation is expected to ease to 6 percent next year from 6.5 percent this year.

 

But the outlook for the Indonesian economy rests on the assumption that world oil prices will return to 72 dollars per barrel next year, that the subprime crisis will have limited impact on the global economy and that the US slowdown will be modest, the bank said.

 

"With these assumptions, vibrant domestic demand is expected to insulate growth somewhat from a downturn in overall world demand," it said.

 

"However, if one of these turn out to be worse than expected the result for Indonesia's growth, state budget and inflation would also be worse than projected."

 

If oil prices remain above 90 dollars in 2008, it would pressure inflation and create fiscal risks due to the impact of fuel substitution and smuggling on subsidies.

 

The Indonesian government is targeting growth of 6.8 percent next year though officials have said that high oil prices and the credit crisis in the US could impact economic performance.

 

The economy expanded 6.3 percent in the first half of 2007, matching the state's full-year target.

 

Government data just released showed the economy grew 6.5 percent in the third quarter from the same period last year, ahead of market expectations. (*)