Recent improvements in Indonesia's macroeconomic indicators are bringing about confidence in the economy as a whole, with the central bank's latest survey showing estimates of higher growth built on more investment and a continued increase in bank lending for the year.
With inflation having been kept in check, coupled with a fairly steady rupiah, the economy is expected to have expanded between 5.1 and 6 percent on-year during 2007's second quarter, and is expected to continue growing at the same levels throughout the year.
Growth may even reach 6.47 percent as investments and exports pick up further, according to a quarterly survey on the economy that Bank Indonesia conducted. The survey involved 100 economists, market analysts and academics in 13 major cities throughout the country.
The survey says that local and foreign investments will increase during the second half of this year, as Indonesia's exports grow by between 15.1 and 22.5 percent.
The higher investment will echo robust activity in the country's main economic driver, consumption, which will be supported by relatively stable consumer prices, while the rupiah remains between Rp 9,001 and Rp 9,500 to the U.S. dollar, creating a stable environment for trade activities.
Inflation may still affect growth in consumption and investments if the government fails to manage the demand and supply of goods and services, as well as consumer price expectations in the country, the survey said.
Problems with graft and the rule of law are other factors which may have adverse effects on growth.
The government is expecting 6.3 percent full-year growth for 2007, and 6.6 percent for 2008, on inflation of 6.5 percent.
Indonesia's economy only grew by 5.5 percent last year, slightly lower than 2005's 5.6 percent, due to a rise in inflation and interest rates from fuel price hikes.
In a separate survey conducted of all Jakarta-based banks, lending from the banking sector is expected to continue rising in the third quarter of 2007 on lower interest rates.
Bank lending in the second quarter had grown along with rising demand, the survey showed, with only 34 percent of banks having failed to meet their quarterly lending targets, while only 13 percent of total loan applications in the period were rejected.
Most of the lending was in the form of working capital loans in the trade industry and consumer loans for mortgages, picking up on the recent trend of lower lending rates.
The average lending rate for working capital loans decreased slightly to 14.2 percent in the second quarter, from 14.5 percent in the first. The interest rate on consumer loans, however, saw an uptick to 16.9 percent from 15.9 percent.
Lending rates are expected to come down again in the third quarter to 13.9 percent for working capital loans and 16.5 percent for consumer loans.
This is expected to further spur bank lending to drive the economy, which according to data from Bank Indonesia reached Rp 856 trillion as of the end of May.
The central bank is for 2007 expecting bank lending to grow between 18 and 20 percent, from 14 percent to Rp 792 trillion last year.