Member Countries’ Recent Economic Report: Indonesia

Jakarta, Indonesia | December 02, 2007 by D-8 Secretariat

Note: D-8 Organization website is periodically presenting recent economic report of each member countries, by collecting information and data from respective members’ bank central and/or other authoritative institution in charge. The full report can be downloaded in each countries’ profile page from the main navigation menu.

The Indonesian economy is predicted to undergo sustained expansion in 2007-2008 underpinned by macroeconomic stability. Economic growth in 2007 is forecasted at 6.2%, driven mainly by household consumption and exports. In 2008, growth is predicted to reach 6.5% on the strength of household consumption and exports. A greater share of the economic growth momentum is expected to come from investment. Concerning prices, CPI inflation in 2007 and 2008 is predicted within the targeted range of 6%±1% and 5%±1%.

As Indonesia enters Q4/2007, government investment and consumption are both sources of fiscal stimulus for the domestic economy. The 2007 budget deficit is forecasted to widen from 1.0% of GDP in 2006 to 1.5% of GDP in the revised 2007 budget. The increased deficit points to the likelihood of an enlarged share of government consumption and investment in GDP formation. On the financing side, the fiscal deficit is not expected to pose difficulties due to the front loading strategy in issuance of Treasury Notes. Under this strategy, in September 2007 Treasury note issuance reached 93% of the Revised State Budget target. In 2008, the government targets the fiscal deficit at 1.7% of GDP GDP, while maintaining equilibrium between providing a fiscal stimulus and maintaining fiscal sustainability. The relatively high deficit is indicative of the government»s seriousness in providing a more robust stimulus and harnessing the government sector as a source of economic growth.

Indonesia’s economic growth in 2007 is predicted to reach 6.2% (see table). Household consumption and exports are again envisaged as the primary sources of economic growth, alongside rapid expansion in private investment. Faster economic growth and the associated rise in private incomes are providing the main driving force for increased household consumption in 2007. Exports are also forging ahead due to the high volume of world trade. Strong investment growth is expected, with infrastructure projects providing momentum.

In 2008, growth is predicted to reach 6.5% on the strength of household consumption and exports. Investment will also play an increasingly important role with more infrastructure projects scheduled for 2008 that will boost growth in the construction sector. Stronger public purchasing power will provide added momentum for growth in manufacturing, transport and communications and the trade, hotels and restaurants sector.

Investment growth is predicted to mount higher in 2007 and 2008 at 8.3% and 10.7% respectively. Stronger investment growth in 2007 will lead to higher private incomes. The lower interest rates in 2007 will also encourage greater investment. Concerning costs, declining world commodity prices will make imported goods, and especially capital goods, more affordable. Lower prices for imported capital goods will provide investors an added boost for proceeding with investments. investments. In 2008, investment is set to climb even further due to brisk demand fuelled by more robust world economic growth. In addition, the forecasted low prices for imported goods will become another factor encouraging investment growth.

Read Also

• Member Countries’ Recent Economic Report (Malaysia)
• HIGHLIGHTS-Malaysia’s economic outlook for 2009
• UN report: Pakistan’s Economy to Remain Strong
• Egypt Economic Growth 7.2 percent
• D-8 Paves Up the Way for Food Security Initiatives among Member Countries
• Egypt’s Economic Reforms Empower Private Sector
• Indonesian Economy Growth Soars the Highest in 11 Years
• Nigerian President Says GDP to Expand 8.9% Next Year
• Pakistan: Export and Remittances Reduced Deficit
• What We Expect to Indonesia and Turkey in G-20 Summit in London?