Bloomberg News

Bank Indonesia Cuts GDP Forecasts as Global Slowdown Hurts Asia

November 15, 2011

Nov. 15 (Bloomberg) -- Indonesia’s central bank cut growth forecasts for Southeast Asia’s largest economy, adding to signs Europe’s debt crisis is hurting expansion in Asian nations from the Philippines to Singapore.

Bank Indonesia lowered its 2012 economic growth forecast to 6.5 percent from a previous estimate of 6.7 percent, Perry Warjiyo, director of economic research and monetary policy, said in Jakarta today. The bank cut its fourth-quarter forecast to 6.6 percent from 6.7 percent, he said.

“The impact of the global crisis will be more significant in 2012,” Warjiyo said. “Our exports to developed nations like the U.S. or Europe as well as emerging countries like China or India will slow.”

Indonesia led Asian economies in cutting interest rates last month while the government has said it is preparing a fiscal stimulus package that may be implemented in the first half of 2012. Asian Development Bank Managing Director General Rajat Nag said yesterday economies in the region may expand at a slower pace than earlier forecast, citing a “knock-on effect” on Asia from the European crisis.

“The cuts are tiny and the economy is still growing above trend and therefore inflationary,” said Robert Prior- Wandesforde, Singapore-based head of India and Southeast Asia economics at Credit Suisse Group AG. “My worry is that Indonesia is taking risks with inflation. Growth of 6.5 percent is hardly enough to warrant significant easing of monetary or fiscal policy.”

Currency Falls

The rupiah has declined almost 5 percent in the past six months as Europe’s crisis deterred investors from emerging- market assets. The Jakarta Composite index was little changed during the same period.

Bank Indonesia cut its benchmark rate to a record low of 6 percent this month, judging weaker growth is a bigger threat than price pressures. Inflation eased to 4.42 percent in October, a 17-month low, as the administration holds off from removing fuel subsidies this year, helping cool consumer prices.

Other policy makers in the region including the Philippines and Malaysia have held off from rate cuts, opting instead to hold borrowing costs steady.

Philippine President Benigno Aquino unveiled a 72 billion- peso ($1.7 billion) fiscal stimulus package last month, after the government cut its growth forecasts for this year and next. China’s economy, the largest in Asia, grew the least in two years in the third quarter, with gross domestic product rising 9.1 percent from a year earlier.

Singapore’s retail sales declined in September for the first time in seven months, and Philippine remittance growth slowed in the same period, reports showed today.

--Editors: Stephanie Phang, Greg Ahlstrand

To contact the reporters on this story: Hidayat Setiaji in Jakarta at hsetiaji@bloomberg.net; Karl Lester M. Yap in Manila at kyap5@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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