The central bank of Indonesia (Bank Indonesia) lowered its forecast for growth of Southeast Asia's largest economy in 2014 from the range of 5.8 - 6.2 percent to 5.5 - 5.9 percent as expansion of domestic consumption and exports are less robust than previously estimated. As such, Bank Indonesia implied that economic expansion of Indonesia will slow down further. Starting from 2011, gross domestic product (GDP) growth of Indonesia has declined steadily from 6.5 percent to 5.8 percent in 2013.
Gross Domestic Product of Indonesia 2006-2013:
(in billion USD)
(annual percent change)
|GDP per Capita
Sources: World Bank, International Monetary Fund (IMF) and Statistics Indonesia (BPS)
Indonesia's central bank revised its outlook for economic growth due to three factors. Firstly, it believes that the impact of the legislative and presidential elections (scheduled for April and July 2014) on GDP growth will be less strong than in previous election years. Previously, Bank Indonesia expected the 2014 elections to add 0.19 percentage points to Indonesia's economic growth. Secondly, growth of investment has slowed in the first quarter of 2014 (possibly due to investors' wait & see attitude ahead of the elections). Thirdly, exports have not picked up yet due to continued weak global demand (particularly slowing economic growth of China has been a concern) as well as the impact of the ban on exports of unprocessed minerals that was implemented by the Indonesian government on 12 January 2014.
Despite slowing economic growth, Bank Indonesia detects improving economic fundamentals in the economy of Indonesia, such as the easing current account deficit and inflation, as well as the strong performance of the Indonesian rupiah exchange rate since the start of 2014. On Thursday (13/03), the central bank announced to maintain its key interest rate (BI rate) at 7.50 percent, in line with most market participants' expectation.