Exports are projected to improve in light of stronger growth in the
PRC and some other markets in 2013. Next year, the export recovery
should gather pace as prospects brighten for growth in major indu...
economies. The drag on GDP growth from net exports is expected to
moderate. Monthly data indicate that the decline in exports bottomed
out in August 2012 (Figure 3.24.13). Prices for export commodities have
firmed. Merchandise exports are forecast to rise by 7% in 2013. Robust
investment will keep imports of capital goods relatively high, though
imports of consumption goods will likely be curtailed by the rupiah’s
The trade surplus is projected to rise and the current account deficit
to narrow (Figure 3.24.14). Inflows of direct and portfolio investment
are seen keeping the balance of payments in surplus. Downward
pressure on the rupiah is expected to abate as the current account
Inflation is forecast to average 5.2% in 2013, rising since last year
because of a 15% increase in electricity tariffs, the depreciation of the
rupiah, and a boost in minimum wages. Higher food prices lifted
inflation to 5.3% in the first 3 months of this year. Upward pressure from
this source should ease as the harvest season gets underway in April.
Inflation in 2014 is expected to average 4.7%, taking into account base
effects from the pickup this year. These forecasts assume the government
does not raise fuel prices in 2013 or 2014. Inflation would be higher if fuel
prices were increased to ease the high cost to the budget of fuel subsidies
or if food supplies are disrupted by bad weather.
The government targets a budget deficit this year equivalent to 1.6%
of GDP, narrowing slightly from last year’s outcome of 1.8%. The budget
contains incentives for oil and gas exploration, the production of
low-emission motor vehicles, and manufacturing with higher value
added, plus the boost in infrastructure spending.
Inflation within Bank Indonesia’s target range of 3.5%–5.5% suggests
that monetary policy will be accommodative to economic growth. If the
government were to increase fuel prices, the central bank might need
to quickly lift the policy rate to dampen inflationary expectations and
bolster market confidence. Nevertheless, bank lending interest rates will
likely stay relatively low this year and stimulate credit growth.
External risks to this outlook involve the global economy and capital
inflows. Slower-than-projected growth in major export markets would
delay the recovery in exports and hold down GDP growth. The shift of
the current account into deficit has made the country more dependent on
capital inflows. A sharp slowdown in inflows, or a reversal to outflows,
would put pressure on the balance of payments and could disrupt the
financing of the budget. The government has taken steps to manage
this risk by establishing a bond stabilization fund and arranging for
a $5 billion standby loan from development partners, among other
Domestic risks involve investment and inflation. It will be important
to maintain efforts to improve the investment climate to safeguard the
uptrend in fixed investment. An unexpected spike in inflation, perhaps
caused by tight food supplies or a large increase in fuel prices, would hurt
consumption, investor sentiment, and capital inflows.
Source: CEIC Data Company (accessed 26 March 2013), Asian Development Outlook database - http://www.adb.org/countries/indonesia/main
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