Growth Looking Up

ADB maintains Indonesia's growth forecast, expects tamer inflation

By Tabita Diela
Wednesday, September 27, 2017

The Manila-based Asian Development Bank has decided to maintain its forecast for Indonesia's gross domestic product growth at 5.1 percent this year and 5.3 percent next year on the back of strong fixed investment and net exports, the lender said in an update of its flagship report, published on Tuesday (26/09).

"The economy remains very resilient amid global uncertainty," ADB Indonesia country director Winfried F. Wicklein said during a press conference in Jakarta.

Wicklein said Indonesia can expect economic expansion in the coming year following increased state spending on public infrastructure and an improving climate for private investment, thanks to the government's effort to reform policies and improve the investment climate in the country.

The September edition of Asian Development Outlook 2017 also puts the spotlight on the role of public-private partnerships (PPPs) in helping countries in the Asia and Pacific – including Indonesia – to meet their infrastructure needs of $1.7 trillion per year. According to the report, PPPs can improve infrastructure and public service delivery when properly implemented.

The report says both fiscal and monetary policies continue to be "growth supportive" so far. Bank Indonesia, the central bank, has cut its benchmark rate twice in a row and allowed more flexibility for banks to manage their liquidity. "Looking forward, we think credit growth will go up gradually," said Emma R. Allen, country economist for Indonesia at the ADB.

However, Allen noted that credit growth might not exceed 10 percent as most mid-sized lenders are more interested in improving their asset quality rather than disbursing loans. Bank Indonesia's credit growth target this year is around 10 percent to 12 percent.

The report sees Indonesia's inflation averaging 4 percent this year and slowing to 3.8 percent next year. This is lower than the bank's previous forecast of 4.3 percent this year and 4.5 percent next year as government's efforts to restrain food prices by improving logistics and regional food distribution centers has had positive results.

The report also sees both prospects and risks for Indonesia's trade amid recovering trade partners and downward pressure on commodity prices. It maintains its forecast for Indonesia's current-account deficit at 1.7 percent of GDP this year but expects a wider deficit of 2 percent next year. The ADB's April report expected Indonesia's current-account deficit to be 1.6 percent in 2018.

The ADB's forecasts for the growth of developing Asia – which refers to 45 economies in the Pacific, Central, East, South and Southeast Asia regions, including Indonesia – in 2017 and 2018 have improved to 5.9 percent this year and 5.8 percent next year since its original report in April.

ADB chief economist Yasuyuki Sawada said in a statement that the growth prospects of developing Asian countries are looking up on the back of "a revival in world trade and strong momentum in the People's Republic of China."

This article first appeared on the Jakarta Globe's website on September 26, 2017.

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