DOHA: The weekly analysis of Qatar National Bank (QNB) Group has suggested that growth in Indonesia is challenged by short term instability and underinvestment.
In spite of the enormous long–term growth potential, which makes it one of the fastest growing economies in the world.
Overall, Indonesia’s long-term potential should continue to make it one of the fastest economies in the world.
However, short term instability and poor infrastructure mean that Indonesia is failing to realize its full potential.
Much will depend on the outcome of parliamentary and presidential elections in 2014.
Once the elections are out of the way, a new government committed to infrastructure development could eventually unleash the caged tiger that is Indonesia’s private sector, said QNB Group in its weekly analysis issued here Saturday.
The press release added that the poor state of infrastructure is probably already having a negative impact on growth.
McKinsey estimates that deteriorating infrastructure is restraining GDP growth by 3-4 percentage points every year.
Infrastructure dilapidation is the main reason why QNB Group forecasts growth below trend at 5 percent in 2015-18.
There is a downside risk that growth could be even slower over the medium term, should infrastructure crumble under the weight of its growing population, crippling the development of the private sector.
However, said that Indonesia has enormous long–term growth potential, explaining that the large and rapidly growing population has favorable demographics and is increasingly wealthy.
Adding that Indonesia has a rich endowment of natural resources and a vibrant and dynamic private sector that underpins the growth outlook.
Indonesia has already risen to become the 16th largest economy in the world with GDP of USD878bn in 2012 and was the fourth fastest growing economy among the G20 in 2008-12.
With these strong fundamentals, emerging Indonesia has the potential to grow at near double digit rates, said the press release.
Notwithstanding this strong potential, the Indonesian economy has recently run into a rough patch.
The current account deficit has widened, reaching 4.4 percent of GDP in Q2 2013 as lower commodity prices and a drop in exports of natural resources reduced export receipts.
At the same time, strong domestic demand continued to push up the import bill, it added.
Investor confidence was further shaken by the announcement on May 18, 2013 of the Federal Reserve’s intention to taper its asset-purchasing program (the so-called tapering of Quantitative Easing QE), said the QNB weekly analysis. (QNA)
