Jakarta (ANTARA News) - Indonesia`s processing industry is predicted to grow only two percent this year, down from 3.7 percent in 2008, according to Bank Indonesia`s economic report issued on Wednesday.
"The slowdown occurs because of decreased exports and domestic demand," it states.
BI predicts export-oriented industries would be the hardest hit, including textile and textile products, footwear, electronics, automotive, wood and wooden handicraft products.
Reduced domestic and external demand had forced many companies in the industrial sector to stop production. "They adopted the policy to avoid overstocking," it states.
It says expansion of the domestic economy will also be potentially hampered by tight liquidity and inflow of discounted imported goods.
The goods come from markets in advanced countries facing declining purchasing power.
It says imported goods that enter into Indonesia are not only half-made goods but also goods that are ready for consumption and also produced in the country.
BI also predicts the growth in the trade, restaurant and hotel sectors would also drop from 7.2 percent in 2008 to only 4.5 percent following weakening private consumption as a result of declining purchasing power.
The central bank predicts retail and wholesale trade that have dropped since the end of 2008 will further decline further in 2009.
Retail markets that will be affected heavily are the automotive, electronic and shoe markets.
Auto sales will drop, BI predicts, because people`s purchasing power declines while the price of cars soars to adjust with the exchange rate and because of tight liquidity, it says.