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Indonesia's GDP Growth To Remain Subdued: Capital Economics

Indonesia's economic growth is likely to remain subdued by past standards in 2018 and next year, Gareth Leather, an economist at Capital Economics, said.

GDP growth improved marginally to 5.2 percent in the December quarter from 5.1 percent in the September quarter, official data showed on February 5. For 2017 as a whole, growth came in at 5.1 percent, up from 5.0 percent in 2016.

"Looking ahead, we see little prospect of a sustained recovery," the economist said.

First, the economy is unlikely to get much support from either monetary or fiscal policy, Leather added.

On the monetary side, although Bank Indonesia has cut interest rates fairly aggressively over the past couple of years, credit growth remains very weak, the economist noted.

Moreover, fiscal policy is unlikely to provide much of a boost to growth given the government is mandated by law to keep the budget deficit to within 3 percent of GDP, Leather said.

Besides this, export revenues are likely to be held back by low commodity prices.

Capital Economics further noted that growth will depend on the government's progress in addressing Indonesia's long-standing structural issues.

Encouragingly, President Joko Widodo has passed useful reforms to Indonesia's foreign ownership rules. But progress has been limited, the economist noted.

While the consensus is expecting growth to accelerate gradually over the next couple of years, Leather said the economy will grow at just 5.0 percent both this year and next.

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