World Bank Keeps Indonesia's Growth Forecast Despite US Policy Uncertainty

A vendor hangs a skirt at a clothing stall in a market in Jakarta. (Reuters Photo/Garry Lotulung)

By : Tabita Diela | on 8:14 PM January 11, 2017
Category : Business, Economy

Jakarta. The World Bank maintains Indonesia's economic growth forecast at 5.3 percent this year and 5.5 percent next year, citing a progress in the country's adjustment to the lower commodity price environment.

This is an improvement from a 5.1 percent growth initially expected in 2016, thanks to the government's effort to improve policy credibility and keep its foreign debt relatively low, which allowed the central bank to move to a policy easing cycle.

The Bank, in a report titled "Global Economic Prospects: Weak Investment in Uncertain Times" released on Tuesday (10/01), said improvements in emerging market and developing countries will drive a higher global growth this year.

The Bank expects a moderate pick-up in global economic growth to 2.7 percent in 2017 from 2.3 percent seen last year. That is, however, a 0.1 percentage point lower from its own June 2016 projection.

"After years of disappointing global growth, we are encouraged to see stronger economic prospects on the horizon," World Bank Group President Jim Yong Kim said in a statement.

"Now is the time to take advantage of this momentum and increase investments in infrastructure and people," he added.

But the largely positive outlook is clouded by uncertainty about policy direction from the United States as its specific economic policies are still being shaped.

US president-elect Donald Trump's various policy plans, including tax cuts, infrastructure spending and a protectionist trade may also heighten uncertainty, given that the United States is a large trading partner for one-quarter of the world's countries.

While a surge in US growth due to fiscal stimulus could provide a "significant boost" to the global economy, a rise in US interest rates and a stronger dollar will lead to a "tightening of financing conditions," putting at risk emerging market countries that depend on external financing, the report said.

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