Economy to grow slower in 2006

Economy to grow slower in 2006

Urip Hudiono and Mustaqim, The Jakarta Post, Jakarta

As high inflation and interest rates continue to climb, the
economy is expected to remain sluggish until the end of 2006,
Bank Indonesia said, wrapping up both this year and next with
weaker than expected growth.

In its latest assessment of the economy, Bank Indonesia (BI)
is estimating that gross domestic product (GDP) will expand by
between 5.3 percent and 5.6 percent this year, and approximately
5.0 percent to 5.7 percent in 2006.

Both are lower than the government's official GDP growth
forecast of 6.0 percent for 2005 and 6.2 percent for 2006. The
GDP growth forecast is a key reference point in the drafting of
the annual budget.

BI Deputy Governor Hartadi A. Sarwono said the economy would
likely continue its slowdown until next year's third quarter,
with this year's final quarter growing by 4.0 percent to 4.5
percent.

"The economic slowdown is the result of a downturn in
consumption and investments as the public's purchasing power
decreases after the recent fuel price hikes, a weak rupiah and
high interest rates," he said.

Data from the Central Statistics Agency shows that the economy
has indeed been slowing down, from 6.12 percent in the first
quarter to 5.34 percent third quarter.

Hartadi went on to explain that a boost in consumption and
investments could be expected to drive next year's growth, but
cautioned against potential global imbalances and oil prices,
which still remain relatively high at around US$57 a barrel.

Meanwhile, on the inflation front, BI is forecasting that
inflation during next year's first quarter will be at 3.19
percent due to a planned electricity rate hike, but tempering to
0.88 percent and 1.08 percent during next two quarters, before
rising again to 2.36 percent due to the holiday seasons in the
final quarter of 2006.

On-year inflation, meanwhile, is estimated to remain at
approximately 18 percent during next year's first two quarters,
but will gradually ease down to 16.7 percent in the third quarter
and 8 percent by the end of 2006.

Separately, economist Arianto A. Patunru of the University of
Indonesia's Institute for Economic and Social Research (LPEM-UI)
expected a growth of 5.75 percent for 2006, as inflation slowly
levels out to 8.55 percent.

"This is on assumptions that the impact of the fuel price hike
will slowly disappear within the April to September 2006 period,
GDP growth will pick up by July 2006, and an overall recovery
will be reached by October. Also, the figures do not include an
electricity rate hike, which is possible," he said.