BPS to cut GDP forecast to 1.5%

JAKARTA (JP): The Central Bureau of Statistics (BPS) said on Monday it would revise down this year's economic growth forecast to 1.5 percent from the initial target of 4 percent, due to continuing political instability.

Speaking at a news conference, BPS chairman Sugito Suwito said the political instability had dragged down the economic recovery process and might continue to give a negative impact to the economy until the end of the year.

"BPS will have to revise the country's whole year's growth forecast from 4 percent to as low as 1.5 percent should a worst case scenario apply," Sugito said.

He said BPS was still considering the more exact figure of this year's forecast, hinting the worst case scenario would take place if political instability sustained and continued to have a negative impact on the rupiah.

BPS reported that Gross Domestic Product (GDP) grew 3.2 percent in the first quarter of this year over the same period last year, within the government's initial target range of 3 percent and 4 percent.

The growth, according to BPS, is driven by an increase in consumer spending, exports and investment. But the agency is less optimistic about the second quarter, saying that political instability would slow down economic activities.

Sugito estimated that the economy would likely stagnate in the next few months due to the uncertainty and the GDP would likely record zero growth compared to the 1.07 percent forecasted.

"We previously expected that the first quarter's growth would continue in the second quarter, but the weakening rupiah, new indications of high inflation and falling share prices on the local stock exchange have soured our view," he said.

The local currency has lost over 5 percent of its value against the U.S. dollar in a week, led by fears of the U.S. government's plan of hiking its interest rates and unsupportive statements by policy makers in the government here.

The rupiah closed at Rp 8,540 against the greenback on Monday, compared to Rp 8,380 the previous day.

Being dragged down by the rupiah, the Jakarta Stock Exchange Composite Index lost another 2 percent on Monday to close at 516.43 points.

Bank Indonesia Governor Sjahril Sabirin said he was sticking to the central bank's GDP forecast of between 3 percent and 4 percent this year.

"Our estimate remains the same, that this year's growth will be between 3 percent and 4 percent," he said.

According to Sugito, the potential for strong economic recovery in Indonesia was already there, as indicated by the surprising increase in manufacturing and investment activities during the first quarter, but it could not yet follow through due to political instability, weak law enforcement and growing security concerns.

Investment grew 11.68 percent in the first quarter over the same period last year, while manufacturing increased 7.2 percent.

"Both of these sectors slumped during the crisis, the activity turnaround of these areas is a key indicator of an economic recovery," Sugito said.

The breakdown of the GDP growth showed that the agriculture sector declined in the first quarter by 8.5 percent from the same period in 1999, but grew sharply by 15.3 percent as compared to the fourth quarter of 1999.

The manufacturing sector rose 7.2 percent in the first quarter over the same period last year, but declined 1.1 percent from the fourth quarter in 1999.

The construction sector soared 12.9 percent compared to the first quarter of 1999 and 0.9 percent from the previous quarter.

The transportation and communications sectors grew 11.5 percent over the same quarter last year, but only increased 2.16 percent over the previous quarter.

Finance and leasing's year-on-year growth stood at 5.4 percent this quarter, but if compared to the previous quarter it only stood at 0.2 percent.

The utilities sector (electricity, gas and water) was up 8.5 percent over the same quarter last year, but declined 3.4 percent over the previous quarter. (udi)