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Indonesia Likely To Maintain Strong Growth: Capital Economics

The Indonesian economy is likely to maintain its current level of strong growth during the rest of 2012, helped by favorable demographics and a rising investment ratio, Capital Economics Asia Economist Gareth Leather said in a note Monday.

Capital economics expects the economy to expand around 6 percent this year, though a terrible infrastructure and a poor business investment are likely to hold back the growth momentum.

Though rising inflationary pressures give the Bank of Indonesia enough reason to engage in monetary tightening by the year-end, given its pro-growth bias and the increasing possibility of the euro-zone crisis intensifying this year the bank is likely to keep the rate on hold until end-2012, the economist noted.

Capital economics said that Indonesia's inflation, which rose to a seven-month high of 4.5 percent in April, is expected to accelerate to 7 percent by the end of 2012 on a rebound in domestic food prices. The country's export growth, which eased sharply to 7.8 percent in the first quarter, is unlikely to rebound significantly any time soon, the firm noted.

Data released by Statistics Indonesia today showed that the economy expanded 6.3 percent annually in the first quarter, slower than the 6.5 percent growth seen in the fourth quarter. The latest growth was driven mainly by strong domestic demand amid rapid wage growth and rising employment levels, combined with an increase in investment.

by RTT Staff Writer

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