World Bank Raised GDP Growth For Indonesia

The World Bank has raised its 2009 Indonesia growth forecast to 4.3 percent from 3.5 percent, largely due to the strong domestic market and increased government spending on stimulus measures, the bank’s quarterly report released on Monday said.

“Indonesia’s large domestic market, along with the fact that it was never highly dependent on exports, has always been the country’s saving grace in this global financial crisis,” said Joachim von Amsberg, the World Bank’s country director for Indonesia. “These factors, coupled with a strong banking sector and prudent macroeconomic management, have allowed Indonesia to weather the storm on a much stronger footing than its regional neighbors.”

The anticipated recovery is in line with an improving global economy, he said. Most of the nation’s major export markets exited recession by mid-year and prices for the country’s commodity exports have gradually recovered from their late-2008 declines. “The mid-2009 trend of gradual recovery is to continue over the coming year and a half,” said World Bank senior economist Shubham Chauduri, who was one of the principal authors of the quarterly report.

“Domestic demand is likely to continue as the main driver of growth, as the government continues to disburse its fiscal stimulus and, in 2010, investors regain confidence.” The report says that the domestic financial sector is going from strength to strength, with a robust banking industry and the return of foreign investors. Employment is also expected to grow faster than the labor force. The bank’s 2009 growth forecast is in line with the government’s estimate of 4.3 percent. It expects growth to reach 5.4 percent in 2010, also up from its earlier prediction of 5 percent, although still lower than the government’s forecast of 5.5 percent.

The World Bank also said the budget deficit would be lower this year, estimating it at 2.2 percent, compared with the government’s earlier forecast of 2.5 percent. However, the bank also sees inflation rising to 9 percent by the end of year, compared with the government’s forecast of 5 percent.