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Indonesia economic outlook 2010

Unlike in early 2009, optimism was high toward the end of 2009, about global economic recovery and stronger performance of Indonesian economy. A number of macro economic indicators showed improvement in major economies including the United States, Japan and Europe. Indicators even showed that the manufacturing sector of China and India already fully recovered. China leads the world toward economic recovery. The United States and a number of European countries have gone through global economic recession and began to post positive growth. The world market is brisker and firmer, opening an opportunity for Indonesia to boost exports. In 2009, Indonesia managed to grow stronger than expected. Previous prediction put the country's economic growth at 3%-3.5% but in the first 11 months of 2009, the country's economy grew 4.2%. The growth rate was estimated to reach 4.3% in the whole of 2009. Inflation was only 2.7% in the first 11 months of 2009 or the lowest in the past 10 years. The rupiah has continued to gain to reach an average level of 9,400 per US dollar in November, 2009. The trend continued until early 2010 reaching around 9,200 in January. However, it is not all smooth in 2010. There are still a host of challenges to be met. The Asean-China Free Trade Agreement (AC-FTA), which came into effect on January 1, has created a big controversy with cons seeing it a threat to the country's manufacturing industry. Various sector of the country's manufacturing industry were already weakened by large imports of manufactured products from the giant partner. Inadequate and poor condition of infrastructure remain big hurdles hampering investment, which is expected to be a driving motor for growth of the country's economy in 2010. Political issue over the scandal of Bank Century is also a potential stumbling block causing a drag in economic development. The manufacturing sector could not be expected to make much headway toward recovery as many of the sectors need revitalization and restructuring. Many factories still rely on old and outdated machines. However, almost everybody agrees that Indonesia is in good position to chalk up a fairly strong growth in 2010. The government and Bank Indonesia predicted the country's economy will expand 5%-5.5% in 2010. The World Bank even gave a more optimistic growth estimate of 5.6%. The optimisms are partly based on the rising trend in exports since the last quarter of 2009. The International Monetary Fund (IMF), however, is always more conservative in its prediction of the country's economic growth. The IMF gave a lower estimate of 4.8% for the country's economic growth in 2010. General description of Indonesia's economy in 2009 After the turbulence in 2008, the country's economy was relatively stable in 2009. The BI rate was cut to as low as 6.5% much lower than it was in 2008 and 2007. Strong stability was recorded in the rupiah exchange rate. Toward the end of 2009, the rupiah gained to reach the level of 9,400 per dollar or the same as in 2007. The price of premium gasoline was also cut to Rp 4,500 per liter. The inflation rate tended to decline in 2009 after the prices of primary commodities shrank from peaks in 2008. In 2009, the country's inflation was 2.78% or the lowest in the past decade. The country's economy grew by around 4.3% in 2009 or higher than 3.5% predicted by international agencies. The performance was also better than those of other Asean countries like Singapore, Malaysia, and Thailand. The economic growth in 2009 was driven mainly by increase in household consumption and government consumption, which grew by 4.7% and 10.2%. Respectively, Contraction, however, was recorded in exports and imports by 8.2% and 18.3% respectively. Indonesia managed to post positive GDP growth despite export and import contractions thanks to consumption sector. In 2009, household consumption contributed 58% to the country's GDP and exports contributed only 23.5%. Therefore, the impact of the slump that hit export markets on Indonesian economy was not as serious as on export oriented economies like Singapore. Indonesia could rely on domestic market. Transport and communications sector continues to post stronger growth In the third quarter of 2009, positive growth was recorded in almost all sectors led by the transport and communications sector that grew 18.2%. A contraction of 0.6%, however, was recorded for the trade, hotel and restaurant sector. Exports began to grow in Q-IV of 2009 The country's exports in the first 11 months of 2009 were valued at US$ 103.5 billion, down 19% from the same period in 2008. Exports of commodities other than oil and gas were valued at US$ 86.4 billion down 13.1%. The sharpest fall was recorded in the exports of mineral fuel down US$ 347.9 million and the highest was recorded in the exports of cacao up by US$ 21 million. Exports of non-oil/gas to Japan, the country's largest trading partner, in November 2009 were valued at US$ 935.7 million, to the United States valued at US$ 905 million and China US$ 872.2 million; to the European Union (27 countries) US$ 1.17 billion. Exports of industrial products in the first 11 months of 2009 shrank 20.97% and exports of agricultural products fell 6.12 % but exports of mining products rose 28.11 % from the same period in 2008. However, exports in November in 2009 compared with the same month in 2008 rose 2.51%. Similarly in the last quarter of 2009, exports grew compared with the same period in 2008. In October exports grew 13.5% ending a period of contraction in nine months. The growing trend is expected to continue UN 2010. Imports also shrank in 2009. Imports in the first 11 months of 2009 were valued at US$86.58 billion down 28.75 % from the same period in 2008. Imports of commodities other than oil and gas were valued at US$ 69.69 billion in the January-November, 2009 or down 24.22 %. Imports of oil and gas in the first 11 months of 2009 were valued at US$16.89 billion or down 42.84 % from the same period in the previous year. Inflation in 2009 less than 3% In 2009, Indonesia's economy was relatively stable as indicated by the low inflation rate of only 2.78% or the lowest in more than 10 years. The economic slowdown resulted in weak demand keeping the prices from increasing. The price stability was favorable for Indonesia's economy as it maintained the purchasing power of the people resulting in growing domestic market. In December 2009, the inflation rose to follow the rising prices of commodities in the world market such as rice and sugar. The revival of the global economy also strengthened demand and pushed up the prices. In 2010, the increase in the prices of commodities especially food commodities is expected to push up inflation higher than in 2009 but the increase would not be too high. With moderate economic growth, the inflation is forecast to be around 5%-6% in 2010.

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