BI expects robust GDP growth in third quarter

Dadan Wijaksana, Jakarta

Indonesia's economy could expand by around 5.1 percent in the third quarter of the year, as a low-interest-rate environment maintain robust consumer spending, while exports continue to rise, the central bank said in its latest economic assessment.

That would make it the fastest growth rate in six quarters.

"The economic growth in the third quarter of 2004 is predicted to range between 4.6 percent to 5.1 percent," said a statement that outlined the conclusions made at a Bank Indonesia board meeting on Thursday evening.

The figure is better than that of the second quarter, which the central bank estimates at between 4.2 percent to 4.7 percent.

The economy grew by 4.5 percent in the first quarter.

The upbeat sentiment was, in part, based upon an assumption that exports would fare better than in the previous quarter -- notably a boost in the exports of non-oil and gas commodities amid global economic recovery.

In the second quarter, exports were estimated to rise by 8.8 percent, supported by a 3.8 percent increase in non-oil and gas commodities.

However, the central bank said that exports of non-oil and gas commodities would likely grow at a faster pace of 6.5 percent in the third quarter, providing economic growth a much-needed boost.

The official growth target for the largest economy in Southeast Asia this year has been set at 4.8 percent.

The rise in exports bodes well for the government's effort to reduce the dominant role of domestic consumption in driving economic growth.

"...Efforts must surely be taken to reduce the dependence of economic growth on consumption," the BI statement said.

The growth would also be supported by a low-interest-rate environment.

The BI said that any increase in interest rates would be kept to a minimum.

Low interest rates encourage consumer spending, which makes up about 70 percent of the country's economy.

The economy needs to grow by at least 6 percent to provide enough jobs if it wants to significantly alleviate poverty and reduce unemployment.

Other macroeconomic indicators, including the exchange rate and inflation, would likely also improve, after they in the second quarter.

"Inflation in the third quarter, and the whole year, is predicted to close at the upper-end of the earlier target," it said, referring to the target of between 5.5 percent to 6.5 percent.

Year-on-year inflation in the second three-month period was above that range at 6.83 percent, mainly because of the rupiah's slump against the U.S. dollar.

The local unit lost 6.3 percent of its value during that period to hover at an average of 9,005 per dollar taking a hit from various concerns, both external and at home.

Of late, however, the rupiah regained some ground against its U.S. counterpart, the statement said, with the local currency averaging 8,990 per dollar in the first week of July.