Mon, 26 May 2003

Centennial forecasts slower economic growth this year

Fitri Wulandari, The Jakarta Post, Jakarta

Increasing stability in the country's macroeconomic picture may not translate into speedier economic growth due to lingering uncertainties in other parts of the economy.

Singapore-based Centennial Asia Advisory is predicting the economy to grow at a slower rate of 3 percent this year, from 3.7 percent last year, and only slightly pick up next year to 3.3 percent.

"While global demand will, I think, rebound in the third quarter of this year, the overall outlook doesn't seem to be sufficiently positive to see a sharp rebound in growth," Centennial CEO Manu Bhaskaran said in an e-mail response to The Jakarta Post.

The government estimates this year the economy to grow by 4 percent, and 4 percent to 5 percent in 2004.

Achieving higher economic growth is crucial for the economy to be able to absorb the millions of unemployed people.

But Bhaskaran said that a slowing down in consumer spending and increasing uncertainty as the 2004 general election approached would slow down economic growth.

Consumer spending, which has been the main driver of economic growth during the past few years, has started to slow down in the first quarter of this year amid a growing unemployment problem. The Central Statistics Agency (BPS) said last week that household consumption during the quarter fell 1.23 percent from the previous quarter, the main reason for the slower growth rate during the quarter.

On the external front, Bhaskaran said that Indonesia would face tougher competition from other countries in the region like China and Vietnam, both in the export market and in attracting foreign investment.

He added that the outbreak of Severe Acute Respiratory Syndrome in the region and fears of terrorism were negatively affecting the tourism sector.

Meanwhile, economist Anton Gunawan of Citibank in Jakarta said that the economy could still grow by 4 percent this year as significant improvement in the macroeconomic environment, as reflected in the stronger rupiah, benign inflation and lower interest rate environment, would push investment and domestic consumption upward.

He added that the 2004 general election would also cause the government to spend more money, which was good for the economy.

He said that growth in the telecommunications, transportation and agriculture sectors would be significant contributors to economic growth.

"Four percent is, of course, still not good enough, but let's give credit to the improving situation -- it's not all negative," Anton told the Post on the phone.

He added that despite competition from other economies in the region in the export market, Indonesia was still leading in the area of natural resource-based exports, such as oil, gas and mining.

Indeed, exports in the first quarter of this year rose by more than 15 percent compared with the same period last year, due to higher oil and gas exports.