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Indonesia Business Forecast Report Q4 2012

Indonesia Business Forecast Report Q4 2012 - new country guide report published

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2013-01-01 00:31:54 - Indonesia Business Forecast Report Q4 2012 - a new country guide report on

We believe that signs of overheating as a result of Bank Indonesia´s easy monetary policy are beginning to emerge, a phenomenon that will begin to unwind as we move into 2013. This, combined with declining external demand and a challenging outlook for commodities, has led us to materially downgrade our 2013 GDP forecast to 5.6% from 6.4% previously, in line with slowing investment growth. Still, we note that even with this downgrade, we expect Indonesia to remain a regional outperformer.

The government has missed another key window in which it could have reformed its costly and unwieldy fuel subsidy regime, and politicians will be hard-pressed to find an answer to this ongoing conundrum as 2014 elections loom ever closer. Although the



government has proposed a solid 15.0% capital spending increase in 2013, this will be overshadowed by an even larger 18.0% in subsidy spending.

Major Forecast Changes

We have upgraded our headline GDP growth forecast for 2012 from 5.4% to 6.0% as a result of a stronger than expected performance in H112. At the same time, we have downgraded our 2013 forecast from 6.4% to 5.6%. Following Indonesia´s largest quarterly current account deficit on record in Q212, we have downgraded our 2012 current account forecast from a small surplus of US$1.2bn to a deficit of US$12.7bn, or -1.4% of GDP.

Although Indonesia continues to face a challenging trade outlook, we note that the economy is considerably more robust than it was prior to the crises of 1997 and 2008, and thus continue to believe that an external crisis is not in the cards. With the government yet to get serious on the topic of subsidy reform, we have upgraded our 2013 fiscal deficit forecast to 2.7% of GDP versus 2.2% previously, while we continue to expect 2012´s deficit to hit 3.0% versus just 2.1% in 2011.

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Mike King
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