The World Bank cut its projection for Indonesia's economic growth by 0.1 percent this year due to heightened global policy uncertainty. (Antara Photo/Muhammad Adimaja)

World Bank Cuts Indonesia's Growth Forecast

BY :TABITA DIELA

MARCH 22, 2017

Jakarta. The World Bank cut its projection for Indonesia's economic growth by 0.1 percent this year due to heightened global policy uncertainty.

The Washington-based lender is now forecasting that Indonesia's economy will expand 5.2 percent this year after keeping with a previous World Bank estimate from October last year.

"Indonesia is very much connected to the global economy," Rodrigo Chaves, the World Bank's country director for Indonesia, said on Wednesday (22/03). "What happens in the world matters to Indonesia."

The World Bank noted in its "Indonesia Economic Quarterly: Staying the Course" report that possible surprise outcomes from elections in Europe and increasing protectionist sentiments among major global economies may lead to a reduced demand for Indonesia's commodity exports.

The report also underlined the potential for fewer foreign investments flowing into the country in the coming year.

The United States Federal Reserve may also increase its benchmark rate faster than expected, possibly causing outflows from emerging markets as investors opt to re-evaluate and rebalance portfolios to maximize gains, causing volatility in global financial markets.

China, Indonesia's most important trading partner, is currently facing an economic deceleration that has the potential to slow economies throughout Southeast Asia.

Still, the World Bank said the fundamentals of Indonesia's economy "remain strong" on the back of a consistent growth rate, manageable inflation, low current account deficit and a low fiscal deficit.

Indonesia's economic growth reached 5 percent in 2016, up from 4.8 percent a year earlier.

The World Bank expected the country's inflation rate to "temporarily" rise this year to 4.3 percent from 3.5 last year due to hikes in electricity tariffs and vehicle registration fees. However, even that projected increase would fall within the acceptable range of 3 to 5 percent inflation, according to the World Bank.

The World Bank noted that Indonesia's annual current account deficit shrank to 1.8 percent of gross domestic product last year — the smallest deficit since 2011 —and the country's budget deficit reached 2.5 percent of gross domestic product, still below the 3 percent threshold.

"Having achieved robust growth in 2016, the economic outlook for Indonesia remains on the positive side this year," Chaves said.

"With an increase in commodity prices, 2017 offers an opportunity for Indonesia to solidify its recovery and secure stronger growth in the longer-term."

Minister of Finance Sri Mulyani Indrawati commented on the report, saying the 5.2 percent growth is "achievable" but that the central government will stick to its 5.1 percent target as stated in the 2017 state budget.

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