World Bank Cuts Indonesia’s 2013 GDP Forecast on Demand Slowdown

The World Bank cut its forecast for Indonesia’s economic growth this year as it anticipates cooling domestic demand and commodity exports.

Growth in Southeast Asia’s largest economy will probably slow to 5.9 percent, from an earlier forecast of 6.2 percent, according to a quarterly report released in Jakarta today. The Washington-based lender also lifted its annual inflation forecast to 7.2 percent, after the government raised fuel prices last month.

The World Bank estimates adds to predictions that Indonesia’s first price increase for subsidized fuel in five years will damp expansion, with PT Bank Mandiri saying last week profit and loan growth will be hurt by higher interest rates energy costs. Easing investment growth and exports that have declined for more than a year add to the challenge, with a persistent trade deficit contributing to a 3 percent drop in the rupiah this year.

“Indonesia’s policy settings likely need to adjust to somewhat less buoyant economic conditions,” the World Bank said today. “Negative consumer confidence effects from the anticipation of the fuel-subsidy reform, consequent temporary inflation and the recent correction in asset markets have added to the headwinds to domestic demand.”

Indonesia’s foreign and domestic investment growth was 18.7 percent in the three months ended Dec. 31 from a year earlier, compared with the full-year pace of 24.6 percent. Gross domestic product rose 6.02 percent in the January-March period from a year earlier, the smallest gain in more than two years.

Bank Indonesia unexpectedly raised its benchmark interest rate last month to cool inflationary pressures.

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