Indonesia seen growing strongly in 2012 despite weak exports

PHOTO: Indonesia seen growing strongly in 2012 despite weak exports

JAKARTA - Domestic demand and investment stayed strong enough to keep Indonesia growing at a solid pace in the last quarter of 2012 while full-year growth likely was 6.3 per cent, compared with the previous year's 6.5 per cent, a Reuters poll showed on Monday.

According to the poll of 14 economists, the economy grew 6.2 per cent year-on-year in the last three months of 2012, the same annual pace as in the July-September period.

Indonesia will announce fourth-quarter and 2012 full-year gross domestic product (GDP) data on Tuesday.

In a sign that the economy has lost some steam, the median forecast of eight economists for quarter-on-quarter change in the October-December period, on a seasonally-unadjusted basis, was for a contraction of 1.3 per cent.

Exports were weak in 2012, declining 6.61 per cent from the previous year, and Southeast Asia's largest economy suffered its first-ever annual trade deficit.

During 2011 exports grew 29 per cent to strike a record, but that was before a global slowdown battered prices for coal and other commodities that Indonesia sells.

A trade deficit, rooted in weak global demand, raised concerns among offshore investors, hurt the rupiah and made it the worst performing Asian emerging currency last year.

Luckily for Indonesia, exports only account for about 20 per cent of the economy, which is driven by private consumption (about 50 per cent) and investment (around 30 per cent).

"Resilience despite the tough external demand environment has enabled the economy to outperform its peers in the region,"said Eugene Leow, an economist at DBS in Singapore. "This was the case in 2009 and was repeated in 2012."

FAST-GROWING MIDDLE CLASS

In the poll, six economists forecast median annual growth of 6.32 per cent in the first quarter of 2013, helped by some recovery in export demand. In the first quarter of 2012 the economy grew 6.3 per cent year-on-year.

A fast-growing middle class has been a main attraction for big consumer-based firms, from IT and cosmetics to auto makers.

The country drew record high foreign direct investment of 221 trillion rupiah ($22.70 billion) in 2012, up 26 per cent from a year earlier.

Benign inflation during 2012 helped to maintain purchasing power. Dampened by the government's subsidised fuel policy - which many economists say needs to end this year - inflation was 4.32 per cent, well within Bank Indonesia target of 3.5-5.5 per cent.

Data from the statistics bureau showed January inflation stayed at a comfortable level of 4.57 per cent from a year ago, despite the impact of poor weather conditions on food prices.

The central bank is expected to keep its benchmark rate unchanged at a record low 5.75 per cent at a Feb 12 meeting.

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