The long shadow cast over the global economy by the crisis in Europe has just lengthened a little. Asia, where growth has remained strong until now, is starting to feel the chilly economic wind from the West.
In its twice-yearly Global Economic Prospects report released on Tuesday, the World Bank warned that the outlook for developing economies had deteriorated due to the crisis in Europe.
For 2013, the World Bank reduced its growth forecast on the global economy to 3.0 percent from 3.1 percent. Global growth is expected to slow this year to 2.5 percent.
For Indonesia, it reduced its forecast to 6.0 percent growth this year, from a 6.1 percent projection made in April. This latest prognosis should alert the government to the developing storm and propel it to take some immediate preventative action.
Top government leaders, including Vice President Boediono, have started to warn of a possible economic slowdown. This is reassuring, but the business community needs the government to clarify its intentions and promote policies that will empower the private sector.
This was reaffirmed by economists such as Aviliani from the Institute for Development of Economics and Finance (Indef). “What the government must do is to realize that the [European] crisis is not going anywhere in the short term, so they need to better manage the risk that it carries,” she said.
To buffer the economy from the external environment, the government has to lower regulatory barriers and provide new incentives for businesses. It must cut red tape and, if possible, lower corporate taxes so companies can invest more.
In these uncertain times, it is critical that the government shows leadership. Indonesia may still escape the worst effects of the economic crisis, but only if quick action to help businesses is taken.