Citigroup Reduces Economic Outlook

By webadmin on 04:52 pm Sep 22, 2012
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Dion Bisara

US investment bank Citigroup cut Indonesia’s economic growth outlook for next year, reflecting a slowing export recovery amid deteriorating global demand.

Citigroup revised Indonesia’s economic growth to 6.1 percent next year from its earlier projection of 6.3 percent.

Citigroup’s growth forecast was already below the government’s target of 6.8 percent and the World Bank’s forecast of 6.4 percent. The Indonesian government forecast its economy to expand 6.5 percent this year, the same rate as in 2011.

In the first half of this year, Indonesia’s economy grew by 6.3 percent.

Citigroup’s forecast reflects a sluggish global economy, particularly in the United States and Europe, which would impact Indonesia trough trade channels.

“Prospects of a strong export rebound in 2013 remains dim,” Citibank Indonesia economist Helmi Arman, said in a Wednesday report made available on Thursday.

Citigroup cut its global growth forecast to 2.6 percent from the previous estimate of 2.8 percent, after concluding that the US Federal Reserve’s quantitative easing plan announced last week would not be enough to drive economic growth in major countries next year.

Growth in China, one of Indonesia’s main trading partners, will slow to 7.6 percent next year, from an estimated 7.9 percent this year, due to slowing domestic demand and the country’s weakness in exports to developed economies such as in Europe and the United States, the report said.

“As in 2009, China’s slowdown was affecting other Asian economies through a marked weakness in imports,” Citigroup stated.

US economic growth will slow to 1.9 percent next year, from an estimated 2.2 percent this year, the report said, factoring in scheduled tax increases and public spending restraint.

Meanwhile, Citigroup expects Europe to remain in recession, with 0.9 percent contraction next year. The United States and Europe are Indonesia’s third and fourth largest non-oil and gas export destinations, respectively, after China and Japan.

Helmi also said that the rupiah would depreciate to 9,850 per dollar in the next six to 12 months, and inflation in 2013 is expected to be at 5 percent to account for possible electricity tariff hike.

The government targets its currencty to be at Rp 9,300 against the dollar next year, and inflation at 4.9 percent. The rupiah ended Friday at 9,558 and August inflation stood at 4.58 percent.

Helmi added that Indonesia’s current account deficit would continue at 1.7 percent of the country’s gross domestic product next year, from an estimated 2.3 percent this year. The current account is described as the balance of trade.