Slower Growth in Investment and Exports Drive Revised Forecast
Jakarta, 8 December 2014: Due to weaker investment growth and sluggish exports, Indonesia’s economy is projected to grow by 5.2 percent in 2015, lower than the 5.6 percent previously forecasted in July 2014, says a new World Bank report.
Economic growth for 2014 is projected at 5.1 percent, a marginal revision to the 5.2 percent estimated in July 2014, reports the December 2014 issue of the Indonesia Economic Quarterly, the flagship publication of the World Bank in Indonesia, entitled Delivering Change.
Moderation of global growth has contributed to lower prices of Indonesia’s key export commodities and dampened prospects. But lower growth projections may be reversed with stronger than expected investment in 2015.
“Indonesia’s resilient private consumption base continues to shore up domestic demand and growth. Strengthening the other foundations of the economy and strengthening the investment climate will help return Indonesia to a stronger growth trajectory,” says World Bank Country Director for Indonesia, Rodrigo Chaves.
Other challenges remain, however. For example, by end October 2014, government capital expenditure was only 38 percent of the budgeted amount for the year – well below the execution rates in 2012 and 2013.
The current account deficit has been reduced, but modestly, to USD 6.8 billion or 3.1 percent of GDP in the third quarter. This gradual narrowing is expected to continue, with 2015 projections for the current account deficit at 2.8 percent.
Fuel subsidy reform is impacting inflation, but the impact will be temporary, with inflation expected to average 7.5 percent in 2015, following a sharp decline towards the end of next year in the absence of further price shocks.
The over 100 trillion in fiscal savings from the subsidy reform now allows for additional public spending to improve priority areas, such as healthcare. Indonesia spent only 1.2 percent of its GDP in 2012 on public healthcare; that is amongst the lowest GDP ratios for healthcare spending in the world.
“Better spending, including in the healthcare sector and on social assistance programs, would help re-accelerate the rate of poverty reduction, which has slowed in recent years. Without a stronger push in poverty alleviation initiatives, however, Indonesia’s poverty rate – now 11.3 percent – is projected to remain above 8 percent even in 2018,” says Ndiame Diop, World Bank Lead Economist for Indonesia.