Doha: The real GDP growth of Indonesia is to slow further from 5.1 percent in 2014 to 4.5 percent in 2015 as the exchange rate could weaken further and policies remain tight, the QNB Group has said in its Indonesia Economic Insight 2014.
The report examines the outlook for the Indonesian economy and the challenges faced by the new Jokowi administration, such as capital flight and an infrastructure gap, amidst the constraining environment of a slowing economy.
The tightening of global liquidity emanating from the tapering of Quantitative Easing (QE) in the US has led to periodic bouts of capital outflows from Indonesia, exchange rate weakness and higher inflation since mid-2013.
In response, the Indonesian central bank has hiked interest rates to combat inflation and used international reserves to support the currency, while the government has introduced export restrictions to reduce domestic price increases.
As a result, real GDP growth slowed to 5.1 percent in the year to Q2, 2014, from 5.8 percent in 2013, reflecting lower exports and weak investment spending.
An export- and investment-led recovery in 2016 could lift growth to 5.2 percent, provided reforms are implemented.
Inflation may rise from 5.5 percent in 2014 to 6 percent in 2015, owing to fuel subsidy cuts and currency weakness, before easing to 5 percent in 2016 once the currency stabilises.
The weaker IDR should help reduce the current account deficit over the medium term, by making imports more expensive and exports cheaper. However, gains from greater export competitiveness may be limited by the large share of imported intermediate goods in finished exports.
The Peninsula
