JAKARTA: Indonesia's central bank expects Southeast Asia's largest economy to grow 6.3 percent in the fourth quarter, slightly faster than 6.2 percent in the third quarter, though weak exports are likely to be a drag.
Growth slowed in the third quarter to the slowest pace in two years as poor commodity demand hurt exports, though Bank Indonesia expects the fourth quarter to benefit from a traditional pick-up in end-year government spending.
"Government spending can grow 10 percent this year," said Bank Indonesia (BI) monetary policy and research director Perry Warjiyo. " E conomic growth in 2012 will be a bit lower than 6.3 percent."
That full-year forecast is in line with the views of private economists, though lower than an official government target of 6.5 percent growth. Growth was 6.5 percent in 2011.
Despite the solid economic growth and mild inflation this year, the rupiah currency has come under pressure because of worries over trade and current account imbalances.
The current account deficit was $5.3 billion as of September and Warjiyo estimated the deficit for the full year at 2 percent of gross domestic product (GDP).
Exports, around two-thirds of which are commodities, have fallen an average of more than 5 percent a month this year, and the trade minister expects that drop to continue in the fourth quarter.
" Export volumes will increase, but their sum total or rupiah or dollar value will decline.
That is largely because of declining commodity prices," th e minister, Gita Wirjawan, said on the sidelines of an investment conference.
Foreign direct investment has surged to help make up for the export drop, but government spending contracted in the third quarter from a year ago.
The 2012 budget planned for a 43 percent increase in capital spending to invest in much-needed infrastructure.
The government has only spent 39 percent of its planned 2012 expenditure, according to Juniman, an economist at Bank Internasional Indonesia in Jakarta.
"The main challenge for government is to expedite its capital expenditure," said Juniman, who has only one name.
A shortfall in spending, a regular occurrence in a country where red tape and corruption often hold up state projects, is likely to mean the budget deficit will undershoot a government target of 2.2 percent of GDP.
With global investors rushing to grab Indonesia's sovereign bond issues this year, following moves by rating agencies to give it an investment grade rating, many economists think the government should borrow more and spend more to drive growth - in contrast to much of the world where austerity rules.
Domestic demand, which accounts for about 55 percent of the economy, shows few signs of slowing, with consumer confidence rising further in October due to optimism on jobs, central bank data showed on Wednesday.
However, given the bleak global economic outlook, Bank Indonesia is keeping its 2013 growth target at between 6.3 and 6.5 percent. It raised its 2013 inflation rate target by 50 basis points on Wednesday to 5 percent, plus or minus 1 percent.
The central bank, which is expected to leave interest rates at a record low when it next meets on Thursday, sees the risk of inflationary pressures from planned increases in state electricity tariffs in 2013, Warjiyo said.
"The revision signals that BI is a bit worried," said Juniman.
"A hike in fuel prices and electricity tariffs will have an impact on purchasing power and will be a challenge for monetary authority," he said, adding that higher inflation may lead to a rate increase.
Comments
Comments are closed for this article.