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Doha, December 9th 2013 - QNB Group has published Indonesia Economic Insight 2013. The report examines the outlook for the Indonesian economy and how its enormous potential will be impacted by instability related to a current account deficit and underinvestment in infrastructure.
Indonesia has enormous long–term potential based on a rich endowment of natural resources and its large, growing, young and increasingly wealthy population.
According to the report, the population growth and rising wealth are driving the rapid emergence of a consuming middle class.
Indonesia was the fourth fastest growing economy in the G20 during 2008–12, with an average growth rate of 5.9%.
Notwithstanding these achievements, the economy is currently facing a softening of commodity prices and a widening current account deficit
This has led to capital outflows and a sharp depreciation of the exchange rate since mid–2013.
There is a short–term risk of further capital outflows as a result of a potential tapering of Quantitative Easing in the US and political uncertainty about the outcome of the elections in 2014.
Current Account Deficit and Exchange Rate (2011-13)
Sources: Global Insight and QNB Group analysis
Short–term instability and underinvestment are expected to reduce the strong growth potential of Indonesia’s economy to 5.5% in 2013 and 5.0% over the medium term.
The central bank has responded by hiking interest rates to combat inflation and using reserves to support the currency.
The budget deficit has widened on weak revenue, prompting cuts to fuel subsidies and limiting the potential for fiscal stimulus in the short term.
Investment in infrastructure has historically been weak, which threatens to stifle the economy with crippling supply bottlenecks, posing a downside risk to the medium-term growth outlook.
Growth in the banking sector is expected to slow in 2014–15 on tighter liquidity and rising interest rates; low banking penetration however suggests scope for strong medium term growth.
Infrastructure Investment (1995-2011)
(% GDP)
Source: World Bank; *Regional average comprises China, Thailand and Vietnam
Other recent QNB Economic Insight reports include Saudi Arabia, UAE, Qatar, Kuwait, Jordan and Oman and are available on the QNB Group website. QNB Group operates in 26 countries in Europe, the Middle East and Africa and Asia and its economic reports leverage its knowledge of these markets to provided added value for its clients and counterparties.

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