With a number of sectors having contracted in 2006, the country's industrial sector is set to grow by a less-than-expected 5 percent this year, almost 1 percent lower than last year's disappointing growth of 5.9 percent.
The processed timber and miscellaneous timber products industry is expected to shrink by 2 percent this year, while the cement and non-metal mineral products sector is forecast to contract by 1.5 percent.
However, speaking at a joint press conference Thursday with the leaders of a number of business associations, Agus Tjahajana Wirakusuma, the Industry Ministry's secretary-general, said that growing consumer and government spending would turn the tide next year.
"We predict that industrial growth will come in at 7.9 percent in 2007 as most industrial sectors are expected to expand significantly," he said.
"The food and tobacco industry is expected to grow by 5 percent, while the textiles, leather and footwear sector will grow by 4.5 percent, paper and printed products by 6.8 percent, rubber and other chemical products by 8 percent, cement and non-metal materials by 7 percent, and heavy machinery and tools by 12.4 percent," Agus explained.
Among the basic reasons underlying these forecasts, Agus said, was the fact that people's purchasing power had started to improve since the beginning of 2006's last quarter.
"We have to be thankful that we have survived the year after the 2005 fuel price hikes. As we all know, in our history, any changes in the energy sector usually result in major follow-on changes in other sectors, even changes to the national leadership."
Agus predicted that consumers would start to spend again in 2007 after holding back for more than a year since 2005's fuel price hikes. Such increased spending would be in line with declining inflation and interest rates, which would help boost purchasing power as the cost of borrowing became cheaper.
"Let's compare the slack period to chemotherapy. The therapy is now over, and its time to spend again," he said.
"We have already seen improvements in consumers' purchasing power in the last quarter of this year. Take the automotive industry, for example, there has been significant growth in vehicle and motorcycle sales."
Association of Indonesian Automotive Industries (Gaikindo) chairman Bambang Trisulo concurred.
"If you look at things from the year-on-year perspective, you will find that vehicle sales dropped from 543,000 last year to around 320,000 this year. But since September, we have seen sales picking up to about 30,000 units per month," Bambang said.
"One may argue that sales in October only amounted to 21,000 units, but that was because there were only two working weeks in that month," he explained, referring to Ramadhan and Idul Fitri.
Government spending is another key factor that would promote growth in 2007, Agus said.
"We expect that some of the construction projects promoted by the government will commence next year. This would definitely increase the demand for industrial products," Agus predicted.
Despite the upbeat outlook, Agus admitted that the positive developments would only come to pass if all the problems undermining the country's global competitiveness could be fully addressed by, for example, ensuring the enactment of the investment bill into law, reducing red tape, and eliminating conflicting legislative provisions.
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