G3 economies to slow down, import demand to drop

Zakki P. Hakim, The Jakarta Post, Jakarta

The economies of the United States, Europe and Japan are expected to slow down this year, which will pose a modest threat to Asian exporters including Indonesia, as the decelerating economies will consequently have less demand for imports, a leading economist says.

BNP Paribas Chief Economist for Asia Pacific Andrew Freris said the impact on Asian exporters would be relatively modest, as between 30 percent and 45 percent of Asian trade was done with fellow Asian countries outside Japan.

Citing an example, he pointed out that a third of Indonesian exports between 1998 and 2004 went to Singapore, South Korea, China, Malaysia, India, Thailand and the Philippines.

As demand was about to drop, Freris forecast that global commodity prices would also go down and oil prices would be no exception.

"We forecast that oil prices could go down as far as US$40 per barrel from the current average of $47 a barrel," he said in his presentation, Global Financial Developments and the Implications for Asia and Indonesia, on Wednesday.

The economist said the G3 economies -- the U.S., Europe and Japan -- were to slow down in 2005 with Japan and Europe re- accelerating in 2006.

"Interest rates in the U.S. are to continue to rise until year end, while in Europe, rates are to stay flat until later this year. Interest rates in Japan will not increase until deflation ends," he predicted.

Meanwhile, Freris said, the U.S. dollar was to weaken against the euro and yen, while all Asian currencies, including the rupiah, were to strengthen against the dollar throughout the rest of the year.

He predicted that the rupiah could appreciate to Rp 9,000 to the U.S. dollar in the first quarter next year.

He went on to say that the Chinese renminbi would not revalue in 2005 but register only a widening of the trading bands.

Moreover, he was optimistic that Indonesia could grow at over 9 percent by 2009, if the country could secure foreign direct investment (FDI) of up 25 percent of the gross domestic product (GDP), provide adequate infrastructure and maintain efficiency in the financial sector.

He stressed that Indonesia needed FDI to build the manufacturing sector and boost domestic and foreign trade, in order to accumulate enough foreign exchange reserves to lessen the country's foreign debt.