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Indonesian Growth To Ease Modestly This Year: Capital Economics

Indonesia's economic growth is likely to slow only slightly in 2012 though export growth continues to remain weak amid subdued global demand, Gareth Leather, Asia economist at Capital Economics, said in a note Monday.

Though the economy is set to outperform its peers in the region in 2012, as it did in the fourth quarter, growth is likely to ease to 6 percent amidst rising inflation, weakening exports and lower commodity prices, the firm said.

Slower GDP growth may help ease overheating concerns at a time when capacity utilization is close to record levels, and signs that low unemployment and a tight labor market are helping to fuel rapid wage rises, the economist noted.

Capital Economics reaffirmed its earlier forecast that the Bank Indonesia is likely to keep its policy rate unchanged at this week's rate-setting session, But, the firm cautioned that considering the pro-growth bias of the central bank in recent months a rate cut cannot be completely ruled out.

The firm expects household consumption to remain strong in 2012, though a possible rise in inflation later this year could dampen consumer confidence. In the fourth quarter, the annual growth in household spending quickened to 5 percent from 4.8 percent in the previous quarter, helped mainly by falling interest rates, improving consumer confidence, growing employment and easing inflation.

Investment is set to remain robust this year, helped in part by the passage of a land-acquisition bill in December, which could speed-up new infrastructure project, the economist assessed. Investment grew 11.5 percent year-on-year in the fourth quarter, marking the largest expansion since the third quarter of 2008, on the back of robust business confidence, strong FDI inflows and rapid credit growth.

Indonesia's annual GDP growth remained stable at 6.5 percent for the third consecutive quarter in the final three months of 2011. In the whole of 2011, the economy expanded 6.5 percent. Export growth slowed sharply to 7.9 percent in the fourth quarter from 18.5 percent in the third quarter, reflecting the slowdown in the global economy in the final months of 2011.

by RTT Staff Writer

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