Fri, 20 Nov 2009
From: Reuters
PARIS, Nov 19 (Reuters) - Private consumption and a pick-up in investment will drive Indonesia's economy, with annual growth seen above 5 percent in the next two years, the Organisation for Economic Cooperation and Development said on Thursday.

While Indonesia is not a member of the OECD, it is seen as an up-and-coming G20 economy that may soon join the ranks of the BRICs, Brazil, Russia, India, and China, given its large domestic market, rich resources, and growing appeal to investors.

'Domestic demand should continue to be the main driver, supported by a recovery in credit extension and real income gains resulting from ongoing disinflation and falling unemployment,' the OECD said in its semi-annual economic outlook.

'Investment is expected to pick up due to diminishing slack and an improving economic environment.'

The OECD forecast growth would accelerate from 4.5 percent this year to 5.3 percent next, and 5.6 percent in 2011.

Indonesia's government has forecast growth of 4.3 percent this year, and 5.5 percent in 2010.

While a faster-than-expected rebound in global demand would provide a boost for Indonesia's exports, and hence for growth in Southeast Asia's biggest economy, the potential downside risks include further delays to infrastructure projects and other programmes as well as difficulties in obtaining credit, the OECD said.

Indonesia's growth has been held in check because of poor infrastructure, and spending on such projects has fallen behind targets due to various delays, making it likely the government will undershoot its budget deficit goal of 2.5 percent of GDP.

Inflationary pressures have eased, with headline inflation of 2.6 percent in October, well below the year-end target of 3.5-5.5 percent, but monetary policy may need to begin to be tightened in the first half of 2010, the OECD said.

(Reporting by Sara Webb; Editing by Tomasz Janowski)



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