I found this at www.economist.com, one of the most reliable analytical economic magazine on earth. However, Economist.com sometimes lapsed when their forecast eventually was proven wrong. In Q1 2009, Indonesia’s economy grew by 4.4%, which is the 3rd highest in Asia (after China, and India), and GNFI believes Indonesia economy will grow 4.5-5% this year 2009, not 2.4% as Economist.com forecasted. But this is a worth-reading article. Enjoy!
From the Economist Intelligence Unit ViewsWire
A brightening outlook for Indonesia’s economy
Despite the weakness of the global economy, the Economist Intelligence Unit has raised its forecast for Indonesian economic growth. The economy’s performance in the first quarter of 2009, when real GDP grew by 4.4% year on year, was surprisingly strong, mainly owing to the resilience of private consumption. We now expect real GDP to expand by 2.4% this year, compared with a contraction of 1.4% in our previous forecast. We expect growth to accelerate to 3.2% in 2010, up from 0.5% previously.
A number of factors have buoyed private consumption, which accounts for around 60% of GDP. The government’s Rp71.3trn (US$6.9bn) stimulus package, which included cash transfers and higher salaries for civil servants, has supported household expenditure. So too have lower prices for food and fuel, which mean that personal disposable income has not fallen as sharply as expected. Lastly, consumption has been boosted by spending relating to the April legislative election and the upcoming presidential election in July. Private consumption fuelled the first-quarter expansion, rising by 5.8% year on year and contributing 3.4 percentage points to growth.
To be sure, the economy continues to face significant headwinds. Fixed investment, which contributed just 0.8 percentage points to first-quarter growth, will contract this year as domestic firms experience difficulty in accessing capital. Prior to the onset of the global financial crisis, domestic non-financial corporations obtained almost half of their financing from abroad. The Western investors that provided much of this cash are now scrambling to sell assets to pay off their own short-term liabilities, which are becoming increasingly difficult to roll over. As a result, many domestic investment plans are being put on hold or scrapped.
Meanwhile, exporters will have to contend with a sharp contraction in world trade in goods in 2009. After shrinking by 19.1% year on year in the first quarter, the sharpest fall in almost a decade, Indonesia’s merchandise exports will continue to contract sharply in the rest of 2009 owing to lower external demand and weaker prices for most of the commodities that the country sells abroad. In turn, extremely weak export demand will lead firms in the export sector to cut back on investment and lay off workers. However, lower global oil prices, together with a contraction in domestic investment, will suppress the import bill. As a result, we expect the trade surplus to remain stable in 2009.
There are downside risks to our revised forecast. First, the international financial crisis could deepen and have a larger negative impact on global economic growth and capital inflows to Indonesia than we currently expect. Second, although the rupiah has appreciated since mid-March, there is a possibility of renewed exchange-rate weakness. The effect of a full-scale collapse in the rupiah (not our central forecast) on domestic prices would lower the spending power of most Indonesians. A weaker rupiah would also make it more difficult for local corporations to meet their external debt obligations, raising the incidence of bankruptcy. Third, there are also political risks: if deteriorating economic conditions spark social unrest, investment could suffer an even deeper and more protracted decline as investors lose confidence in the country.