2013-01-15 13:35:16 - Indonesia Business Forecast Report Q1 2013 - a new country guide report on companiesandmarkets.com

Economic growth slowed again in the third quarter, and we expect the moderation to continue on into 2013. In particular, we see a relatively challenging outlook for investment in 2013 owing to weakness in commodity prices, policy concerns, and the fragile state of the global economy. We expect headline GDP growth to slow to 5.6% in 2013 from 6.2% in 2012.

Indonesia´s business environment may be challenged by the government´s pursuit of protectionist policies, especially within the mining sphere. While there have been some signs that the government may move to ease certain laws that business interests have decried as particularly punitive, it will be increasingly difficult for the government to backtrack in view of approaching elections in 2014.

Major Forecast Changes

We

 

 

have downgraded our 2013 average forecast for the rupiah to IDR9,700/US$ versus IDR9,400/US$ previously in line with ongoing stresses seen in Indonesia´s external position.

We have upgraded Indonesia´s 2012 fiscal deficit forecast from 2.9% of GDP to 2.5%. However, we note that the government continues to struggle with efficiency issues as a result of its burdensome energy subsidy programme.

Key Risks To Outlook

Indonesia continues to bear risks to substantial hot money outflows in the event of a rapid deterioration in the global economic environment given the large participation level of foreign investors in the market. Such a scenario could effect a considerable sell-off in the rupiah and rapidly rising yields in Indonesian sovereign debt, as seen in 2008.

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