Thursday, August 5, 2010

Indonesia's economic growth beats forecast

JAKARTA: Indonesia's economy grew a faster-than-expected 6.2% in the second quarter (2Q) on strong exports, investment and consumer demand, fuelling market expectations of full-year growth above 6% and increased price pressures.

Southeast Asia's biggest economy has started to attract more interest from foreign direct investors this year, with a flurry of announcements just this week suggesting it may see far more commitments in the coming months.

"Growth in the third quarter may peak and full-year growth may be above 6%," said Slamet Sutomo, a senior official at the Statistics Bureau. A breakdown of the data showed strong growth in exports and imports, as well as spending on infrastructure.

Analysts had forecast annual gross domestic product growth would pick up to 6.0%, the highest since 6.25% in the third quarter of 2008, mainly thanks to strong domestic consumption and exports.

"This portends well for the rest of the year," said Wellian Wiranto, economist at HSBC in Singapore.

"We know the strength of Indonesia is the domestic consumption story and that is still resilient but increasingly, down the road, we might see the second engine of growth warming up, which is the investment cycle.

"We will see newer FDI [foreign direct investment] investors coming in and while that may not have translated to the 2Q figure just yet, we will see that contributing to growth down the road. So it's still good news for Indonesia, basically."

Indonesia's domestic demand story remains strong, with car sales up 78% to a total of 196,132 units in the second quarter from a year ago, after rising 74% to 100,257 units in the first quarter from a year ago.

But more recently, several foreign investors have announced new projects in the resource-rich archipelago.

South Korea's Hankook Tire and steel giant Arcelor Mittal are considering investments in Indonesia, of US$1 billion and US$5 billion (RM3.17 billion and RM15.85 billion) respectively, officials said on Wednesday, Aug 4.

Earlier this week, the state-owned enterprises minister said that China Investment Corp (CIC) may invest up to US$25 billion in Indonesia.

While investors are attracted by the growth story, it lags BRIC rivals India and China in delivering a much higher pace.

The main impediment for Indonesia is infrastructure. Lack of investment in roads, railways, power plants and networks, ports, ferry services, sewerage and irrigation over a period of many years has taken its toll, adding to the cost of transporting goods and doing business.

The country needs to spend billions of dollars on building infrastructure and upgrading its existing systems.

President Susilo Bambang Yudhoyono set up a presidential delivery unit last year to speed up the development of infrastructure projects, and a new law is expected to be passed soon which would make it easier to acquire land needed for infrastructure projects. ' Reuters

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