Singapore-based DBS Group, a leading financial services group in Asia, expects Indonesia's gross domestic product (GDP) growth to reach 5.8 percent in 2013, while it forecasts growth of 6.0 percent in 2014. This year, Indonesia has to cope with ups and downs due to several domestic and foreign factors. According to the institution, two issues stand out as being significantly influential this year. These are the government's decision to increase prices of subsidized fuels in late June and the country's sharply depreciating rupiah.
Higher fuel prices impact negatively on Indonesian people's purchasing power, which subsequently limits domestic consumption. As domestic consumption accounts for over 55 percent of Indonesia's GDP growth, slowing growth thus impacts negatively on nationwide economic growth. Still, domestic consumption remains to be the pillar of support of Indonesia's economic growth.
The DBS Group was positive about the Indonesian government's compensation programs to support the poorer segments of society (after the increase in fuel prices) as well as the country's release of a policy package aimed at restoring financial stability after the rupiah went downhill this year. However, implementation of the package remains to be a question mark.
The institution's forecast for economic expansion of Southeast Asia's largest economy in 2014 is positive at 6.0 percent growth. Next year, the DBS group expects an appreciating rupiah, increasing exports due to improved global conditions, and increased government spending ahead of the 2014 legislative and presidential elections. This all translates into a higher GDP growth projection.
In early September, the International Monetary Fund (IMF) released a less rosy outlook as it downgraded its outlook for economic growth of Indonesia in 2013 to 5.25 percent. According to the IMF, the main factors that contribute to the downgrade are weak exports and a slowdown in investments. Amid weak global conditions, demand for Indonesian commodities plunged, resulting in low commodity prices. For Indonesia, which exports mostly (raw) commodities, this implies a severe negative impact on its trade balance.