Mon, 14 Aug 2006
Signs point to economic rebound

Urip Hudiono, The Jakarta Post, Jakarta

A rosier economic picture is expected to emerge in the second half of the year, with increased growth forecast after a recent easing of inflation and interest rates.

The rupiah also has stabilized to a rate more favorable to investment in the real sector, yet still competitive for exports, which should provide a boost to the country's main growth engine of consumption.

According to the latest surveys from the central bank, public confidence in the economy is on an upward trend.

Although more than half of consumers in the country still believe economic prospects in the next six months will remain shadowed by inflation, nearly a quarter are optimistic that things will improve in terms of growth, income, business opportunities and demand for durable goods. The optimists outnumber those who see the economy heading for a downturn.

More than half of the businesses and industries surveyed are looking to expansion in the second half, closing the book on the slowdown they experienced during the first half of the year.

Astra Honda Motor vice president Tosin Himawan said the motorcycle industry might be able to turn around an estimated 20 percent decline in sales so far this year on the improving economic conditions.

"Opportunities for market expansion are still open given favorable economic conditions and policies," he said.

The country's largest motorcycle maker sold one million units in the first half of the year, less than half of last year's total sales of 2.6 million units. Car manufacturers also expect improved sales in the second semester, after sales dropped to 149,600 units in the first half from 533,900 all of last year.

In the export-oriented furniture industry, confidence is high that the latest economic developments will help the industry achieve a 15 percent growth in sales to US$2.2 billion this year from 7 percent growth last year, Indonesian Furniture and Handicrafts Manufacturers Association chairman Ambar Tjahyono said. The Indonesian Computer Industry Association, meanwhile, sees a 20 percent sales rise to 1.4 million units, association secretary-general Sutiono Gunadi said.

The economy grew by 4.6 percent in the first quarter of this year as compared to 6.2 percent last year, marking a slowdown for the fifth consecutive quarter. The Central Statistics Agency on Aug. 15 will release the first-half growth data, with Bank Indonesia estimating the economy may only have improved slightly to between 4.6 and 5.1 percent. The government expects full-year growth at 5.9 percent.

A surge in inflation to 17 percent following last's year fuel price increases, and ensuing increases of BI's key rate to 12.75 percent, have been blamed for the first-half slowdown. However, inflation eased to 15.15 percent by July, giving BI room to cut its rate to 11.75 percent. Banks are expected to follow by cutting their lending rates, giving a boost to consumption and investment.

Economist Chatib Basri from the University of Indonesia said recently the rate cuts would help revive consumer lending in the automotive, property and consumer electronics sectors.

"We can expect more growth in these sectors for at least the next quarter," he said. Investment in capital goods, however, may only begin picking up in response to rising demand in the last quarter, Chatib said. He added that there was a need to continue improving the investment climate.

Finance Minister Sri Mulyani Indrawati has said state budget spending in the second half will be increased to support the rate cuts in spurring growth.



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