ADB cuts Indonesia 2008 growth forecast to 6.0 percent due to global slowdown

Wed, Apr 2 2008, 03:54 GMT
http://www.afxnews.com

JAKARTA (Thomson Financial) - The Asian Development Bank (ADB) on Wednesday lowered its forecast for 2008 economic growth in Indonesia to 6.0 percent from 6.4 percent due to slowing exports amid a global economic slowdown.

The bank said although around 50 percent of Indonesia's non-oil and gas exports are destined for markets in Asia other than Japan, the slowdown in industrial countries will also indirectly hurt these exports since most are intermediate products that feed into final products that are then shipped to industrial markets.

Another factor supporting the revision is the rising costs of subsidies that will slow government spending on infrastructure projects, said Purnima Rajapakse, an official at the ADB Indonesian office.

The bank said economic growth may pick up to 6.2 percent in 2009. Indonesia's economy grew 6.3 percent in 2007, its best growth rate since the Asian financial crisis in 2007.

It also projected consumer inflation to pick up to 6.8 percent in 2008 from 6.4 percent in 2007 due to increased domestic demand and high global food prices, before moderating to 6.5 percent in 2009 due to an easing of world food prices.

Rajapakse said private consumption and investment growth will remain strong this year, helped by lower interest rates.

Bank Indonesia (BI), the country's central bank, began gradually lowering its key interest rate, known as the BI rate, in May 2006 after it hit a peak of 12.75 percent.

BI has since reduced the rate by a cumulative 475 basis points to 8.0 percent as of the end of last year.

The government is currently still discussing revisions to its 2008 budget, including subsidy spending, due to higher oil prices and a slower growth assumption.

A rise in the oil price assumption to $95 a barrel from $60 in the original budget has been proposed.

As a result, the subsidies envisaged for fuel and electricity may rise to 131 trillion rupiah and 61 trillion rupiah respectively, from 45.8 trillion rupiah and 29.8 trillion rupiah in the original budget.

The government is also planning to increase the food subsidy to 19.8 trillion rupiah from 7.2 trillion rupiah as part of measures to bring down food prices.