Indonesia may feel more pinch on slower growth

Indonesia may feel more pinch on slower growth

Accelerating inflation that will curb the purchasing power of some 230 million Indonesians will finally take its toll, with growth of no more than 6 per cent in the second quarter this year.

It will be the first time that growth will be less than 6 per cent since 2010, when it started to pick up from a global recession.

"Looking at recent economic developments, we forecast our economic growth in the second quarter in 2013 to hover at between 5.9 and 6.1 per cent," Bank Indonesia (BI) Governor Agus Martowardojo told reporters on Friday at his office.

The growth would sit at 5.9 per cent if the government succeeded in raising subsidized fuel prices as soaring inflation might curb people's purchasing power needed to propel the consumption-driven economy, according to BI Deputy Governor Perry Warjiyo.

The state has revised its inflation assumption from 4.9 per cent stipulated in the 2013 state budget to 7.2 per cent in the revised state budget.

The economy might expand to 6.1 per cent if subsidized fuel prices remained the same but it would deteriorate in the long run because ballooning fuel subsidies would cause imbalances, Perry said.

"But we still believe that our economy can expand by 6.3 per cent year-on-year. Remember, there will be more spending for approaching elections in the third and fourth quarters this year," he said, adding that there would be additional household spending stemming from the Idul Fitri and year-end festivities.

Looking at the possible slowdown in the economy, the central bank would have to utilize its monetary tool, not only to manage economic stability, but also to support growth, he added.

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