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Domestic sector drives Indonesia
Published in The Saudi Gazette on 11 - 02 - 2013

JEDDAH – Indonesia's economic growth rate was resilient in the fourth quarter. It eased slightly from 6.2 percent year-on-year (YoY) to 6.1 percent, an analysis from Asiya Investments, an investment firm specializing in Emerging Asia investments, said Sunday.
The biggest drag on growth was the strong rebound in imports, which grew 14.5 percent from the third quarter. However, this is a sign that the domestic economy is still robust, as private consumption and investments continue to drive the economy. For instance, investments grew sequentially for the third quarter in a row, and auto sales set a record of 1 million vehicles in 2012. This is a clear sign of the transformation of the economy, as higher internal demand more than offset falling exports, which have been weakening throughout 2012, Camille Accad, an economist at Asiya Investments who prepared the report noted.
The fall in export growth numbers was already expected at the beginning of the year due to industrial policy measures. Indonesia, whose main exports are commodities, imposed export taxes on raw materials such as unprocessed metal ores with the goal of forcing its industry to move up on the supply chain, she added. With commodity prices overall lower than in 2011, and global demand still weak, exports of the country's main materials steeply fell. However, exports showed signs of a gradual recovery in the fourth quarter, as they grew 6.9 percent from the previous quarter.
Interest rates have been set at a historical low, at 5.75 percent since last year, and this has helped prop up domestic consumption and private investments. Accordingly, credit to the private sector is still growing above 20 percent YoY. Given the current global environment, the current growth levels are relatively high and resilient, especially as the economy is undergoing a structural shift. However, one of the main risks for this year is inflation, which stood at 4.6 percent in January, up from 4.3 percent the previous month.
Moreover, the study added that private consumption is a strong driver of growth in the domestic-oriented nation, but exports have traditionally contributed more to GDP growth.
Growth is likely to remain above 6 percent in 2013. “While the government is expected to continue to enforce structural reforms this year, we still expect some strong investment inflows in the growing economy. A ban on all raw materials is coming up in 2014, and major companies are already setting up mines and processing plants in order to benefit from the lack of competitiveness in the processing industry. The rising minimum wage will also support the growing middle class and drive consumption,” Accad said. — SG


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