The economy is expected to expand by 6 percent next year on the back of continued strong consumption and exports of selected commodities, economists say.
Rising domestic demand will keep consumption robust, backed by declining inflation and interest rates -- the main ingredients for spurring consumer spending, according to ANZ Bank's chief international economist, Amy Auster.
"We forecast that real GDP growth for Indonesia in 2007 will increase to 6 percent in line with increasing domestic demand," Auster said during a presentation on Indonesia's economy Wednesday.
"We also forecast that the inflation rate will be in the moderate range of 5 to 5.5 percent, which should give more room for interest-rate cuts," she added.
Consumption makes up about 60 percent of Indonesia's gross domestic product (GDP), with net exports and investment making up the remainder.
Based on government estimates, Indonesia's economy is expected to grow by 5.8 percent this year and 6.3 percent next year.
While consumption will continue to be strong in 2007, the economy is also likely to get a boost from anticipated export growth, particularly in the case of such commodities as coal, crude oil and rubber, Auster said, citing China and Europe as the main markets.
She added that with the U.S. no longer the main importer of goods from developing countries such as Indonesia, as it has now been replaced by China and Europe, the expected slowdown in the U.S. economy next year would have little impact on global demand.
"Asia's economy is becoming less dependent on the U.S. In 1986, Asia's exports to the U.S., excluding China, reached more than 30 percent of its total exports, whereas they are now at around 15 percent."
Jasmine Robinson, ANZ senior economist, said the economy could grow faster if impediments to investment were removed by the government through continued regulatory reform.
Investment figures show that realized or actual foreign direct investment (FDI) in the first 9 months of the year reached $4.3 billion, a decline of some 44 percent compared to the same period last year.
If it consistently grows by 6 percent, Robinson said that "Indonesia will sit as the 11th economy by size of GDP by 2015 on $1.75 trillion."
In 2005, Indonesia was ranked 15th in the global ranking of economies by size of GDP.
Separately, Standard Chartered Bank chief economist Fauzi Ichsan said that considering the available potential, 2007 growth should be higher than 6 percent.
Indonesia has a good chance of achieving more than 6 percent growth if the government could speed up infrastructural development, Fauzi said.
Fauzi suggested that the government focus on efforts to boost the real sector, instead of relying on consumption alone for growth.
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