Bank Indonesia sees third quarter growth at 4.4-4.9%

Bank Indonesia sees third quarter growth at 4.4-4.9%

The Jakarta Post, Jakarta

The economy may have grown by as much as 4.9 percent in the third
quarter of this year, driven by strong domestic consumption and
an improvement in investment, Bank Indonesia said in its latest
economic assessment.

But while the third quarter growth estimate of between 4.4
percent and 4.9 percent is higher than the second quarter growth
of 4.32 percent, it is slightly lower than the initial projection
made by the central bank in July, when it stated that third
quarter growth could reach as high as 5.1 percent.

It did not provide an explanation for the lower estimate, but
relatively strong inflation in July due to the weakening rupiah
might have eaten into consumers' purchasing power, which in turn
puts downward pressure on consumption -- the main driver of
growth over the past few years.

The central bank, however, noted in a statement issued late on
Tuesday after its monthly board of governors meeting that despite
the stronger growth in the third quarter, investment had not been
strong enough to significantly boost economic capacity, and the
economy was thus still heavily dependent on consumption as
exports performance remained sluggish as well.

"The pattern for economic growth is not balanced, as shown by
the high growth in private consumption," it said.

The Central Statistics Agency is expected to announce the
official third quarter growth later this month.

The government is targeting the economy to expand by 4.8
percent this year, betting on improvement in investment and
exports to support domestic consumption, which has remained
robust mainly due to a lower interest rate environment.

But the largest economy in the Southeast Asia region needs to
grow by at least 6 percent to be able to absorb some 2 to 2.5
million of new workers annually, analysts have said.

The statement said that domestic and foreign investment likely
grew during that period at a range of 8.3 to 8.8 percent.

More impressive was an improvement in foreign investment. The
latest data from the Coordinating Investment Board (BPKM) said
that foreign direct investment approvals had risen by 22 percent
in the January-September period to US$7.9 billion from a year
earlier.

As for export performance, albeit slowly, it has managed to
increase by 17 percent in August from the same period last year,
partly benefiting from the soaring oil prices, according to the
Central Statistics Agency (BPS).

The government has said it was counting on the revival of
offshore investment to accelerate the economic growth.

The completion of a peaceful seven-month election process this
year -- in which market-friendly Susilo Bambang Yudhoyono won the
presidential seat and has pledged to stamp out corruption and
boost the economy -- is expected to mark that revival.

Going forward, the central bank said it expected the economy
this year to grow at the upper end of the 4.5 to 5 percent range,
in line with its earlier forecast.

Elsewhere, the central bank also predicted inflation would go
up heading by the end of the year, marked by religious
festivities such as Ramadhan, Idul Fitri and Christmas.

"Inflationary pressure will likely rise towards the end of
2004, mainly due to higher aggregate demand driven by seasonal
factors ahead of religious events and the year-end celebration,"
it said.

Year-on-year inflation rose by 6.3 percent in September,
slowing from 6.7 percent in August. Cumulatively, inflation as of
September stood at 3.80 percent.

The full-year target for inflation has been set at 7 percent.

The rupiah's 7.8 percent slide against the dollar this year
also contributed to inflation as it made imported goods more
expensive.

The local unit averaged Rp 9,163 per dollar in the third
quarter. In the first nine months of the year, it averaged 8,878
a dollar, the central bank said.