The Asian Development Bank (ADB) expects Indonesia's economic growth this year to slow slightly compared to the 5.78 percent growth rate recorded in 2013. ADB's Country Director for Indonesia, Adrian Ruthenberg, said that GDP growth of Southeast Asia's largest economy is expected to slow to 5.7 percent in 2014 but will accelerate to 6 percent in 2015. The ADB's forecast is based on the assumption that Indonesia's legislative and presidential elections will run smoothly as well as continued government effort to improve the investment climate.
The ADB expects Indonesia's household consumption to remain strong as inflation, which peaked at nearly 9 percent (year-on-year) in 2013 after the government raised prices of subsidized fuels, has been moderating since September 2013. Yesterday (01/04), Statistics Indonesia announced that inflation in March 2014 stood at 7.32 percent (yoy), down from 7.75 percent (yoy) in the previous month. Meanwhile, Indonesia's legislative and presidential elections, scheduled for 9 April and 9 July 2014 respectively, are estimated to boost domestic consumption.
Growth in fixed investment in 2014 is estimated to remain similar to 2013 but is forecast to pick up again in 2015 after the new government has clarified its policies (which may include larger infrastructure investments). Generally, investment prospects in Indonesia are improving due to easing inflation and the declining current account deficit, as well as strengthening world trade.
Lastly, the ADB stated that reducing the current account deficit of Indonesia will remain a challenge in 2014 and beyond. The government of Indonesia has already taken steps since 2013 to curb domestic demand (thus dampen imports) and boost export. However, impact of these policies may be relatively short-lived as a longer-term strengthening of the current account balance requires more structural reforms to achieve sustained gains in productivity and competitiveness. This includes the phasing out of fuel subsidies, and instead use the available funds on infrastructure, education, and social security (needed to enhance social equity).
The ADB also advises the Indonesian government to stimulate more infrastructure investment by the private sector through improving the investment climate. This will help reduce the current account deficit over the longer term, and spur technological innovation to improve productivity and competitiveness.