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.