Fri, 15 Feb 2008
Jakarta (ANTARA News) - The Indonesian economy is expected to have grown at its fastest pace in 2007 since the country was hit by the Asian financial crisis 11 years ago, driven mostly by private consumption.

Falling interest rates, a strong financial market performance, and an increase in pay for civil servants are expected to have underpinned the recovery in purchasing power, said Destry Damayanti, an economist at Mandiri Securities.

Ten economists polled by Thomson Financial are expecting gross domestic product (GDP) growth of 6.2-6.4 percent for 2007, in line with the government projection of 6.3 percent.

Still, the forecasts show growth remains below the pre-crisis level of 7.8 percent that was recorded in 1996.

Analysts are expecting fourth-quarter GDP to have risen 6.1-6.6 percent from the same period a year earlier. GDP is expected to have declined from the preceding quarter as religious holidays meant there were fewer working days in the period.

The Central Bureau of Statistics is scheduled to announce the GDP data on Friday.

"The data will show the biggest growth since the crisis. I think we have seen more conducive economic conditions last year, marked by massive interest rate cuts," said Damhuri Nasution, an economist at Danareksa Research Institute.

Bank Indonesia (BI), the central bank, began gradually lowering its key interest rate, known as the BI rate, in May 2006 after it hit a peak of 12.75 percent. BI has since reduced the rate by a cumulative 475 basis points to 8.0 percent.

Citigroup economist Anton Gunawan is expecting GDP growth of 6.3 percent for the quarter, down from 6.5 percent in the third quarter, with faster domestic demand compensating for lower exports during the quarter.

Gunawan is expecting growth of 6.3 percent for all of 2007.

Consumption spending increased in the final quarter,due to declining real interest rates, which helped offset currency volatility, he said. Gross fixed capital formation likely increased, as capital goods imports increased significantly.

Gunawan said fourth-quarter data may show that slower US economic growth has yet to affect the domestic economy.

Gundy Cahyadi, an economist at Singapore-based IdeaGlobal Ltd, agreed saying that strong consumption and rapid expansion in domestic investment continue to form the underlying drivers of economic growth.

"Both private consumption and public expenditure are likely to see modest expansion in the fourth quarter, and overall consumption is set to grow by more than 5.5 percent in the quarter," he told Thomson Financial.

"In fact, the strong domestic consumption has also been reflected in imports growth, which surged to more than 30 percent year-on-year in the fourth quarter," he said.

"For 2008, we expect to see GDP growth holding above the 6 percent level, most likely within the lower half of Bank Indonesia's 6.2-6.8 percent forecast," he said.

Public expenditure is likely to slip slightly this year amidst higher subsidy costs, but total domestic consumption growth should remain intact at above the 4 percent level.

"Overall then, we think Indonesia's growth prospects remain attractive for foreign funds looking to tap into the economy's potential," he said. (*)



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