RI economic to post less robust growth, say analysts

RI economic to post less robust growth, say analysts

The Jakarta Post, Jakarta

With both inflation and interest rates on the rise, Indonesia's
economy is forecast to wrap up the year with lower-than-expected
growth, analysts say, as consumption slows amid still-weak
exports and investment.

In its latest assessment on the economies of Southeast Asia,
global investment bank Morgan Stanley revised downwards its
outlook for Indonesia's economy, estimating that the country's
gross domestic product (GDP) would likely grow by only 5.3
percent this year.

The New York-based bank even sees Southeast Asia's largest
economy growing even slower in 2006 -- at only 5.2 percent,
lower than the government's official 6.2 percent forecast and
less than analysts' consensus of 5.7 percent.

By comparison, Morgan Stanley revised upwards its forecast for
Singapore, to 4.7 percent this year and 4.9 percent next year,
and also Thailand, to 4.6 percent and 5.4 percent, on the two's
stronger exports.

"The Indonesian economy is clearly decelerating from the
hectic 6.7 percent pace of 2004's final quarter, and we suspect
it will decelerate to about 4.7 percent in the second half of
2005," said economist Daniel Lian, who co-authored the bank's
outlook update with Deyi Tan.

"However, respectable growth of 5.9 percent in the first half
of 2005 means only a slight decrease to a full-year's growth
forecast to 5.3 percent from 5.4 percent."

Indeed, several economists, as well as the central bank and
government officials have already estimated that this year's
growth would slow to below the previously expected 6 percent, as
Indonesia's main economic engine of domestic consumption gets cut
back as a result of fuel price hikes and rising inflation, which
in October had reached 17.89 percent year-on-year.

Businesses also face a slowdown as Bank Indonesia was forced
to hike its key interest rates to 12.25 percent in order to
contain inflation and support the rupiah.

Rival investment bank Standard Chartered sees Indonesia's
economy of slowing to 5.5 percent for this year, although they
sat it will pick up slightly next year to 5.7 percent.

The Central Statistics Agency (BPS) is expected to announce
Indonesia's third quarter growth sometime this week.

Morgan Stanley pointed out that year-on-year retail sales
growth had decelerated to 10.9 percent in the third quarter, from
26.9 percent in the second quarter, as consumer confidence
slipped on rising inflation.

Indonesia's trade balance also edged down, with third quarter
exports growing by only 10 percent from 24.3 percent in the
second quarter, while imports continued to surge at 21.9 percent,
on pricier oil and inflation.

On Indonesia's investment prospects, Morgan Stanley was
particularly concerned about the risks still hampering capital
formation in the country.

"We are not a big believer of the structural investment
revival story. Indonesia, unlike Thailand, lacks essential fiscal
latitude to support proactive financing and lead investment in
its infrastructure plans," Lian said.

"We think the largely merger and acquisition-led foreign
direct investments, with no real productive capacity expansion,
may dwindle in the future."

However, Morgan Stanley said consumption and trade may improve
next year, as the current inflationary impacts from the fuel
price hikes mellow, supported by increased government expenditure
and a more stable rupiah, in addition to a moderate increase in
investment.