Indonesian economy starts recovery in 3rd quarter on supportive policies

Jakarta (Antara News) - Indonesia's economy began to recover in the third quarter following a sluggish performance in the first half ,as supportive fiscal and monetary policies aided growth, the World Bank said in a new report on the country.

At the same time however, the bank said it would maintain, for now, its full year GDP growth forecasts for the country at 5.5 pct for 2006 and 6.2 pct for 2007.

In the first and second quarters this year, GDP grew 4.7 pct and 5.2 pct year-on-year, against annualized growth of 6.3 and 5.6 pct in the first and second quarters last year.

The World Bank noted that the slight pullback in the first half this year was due to the sharp fuel price hike late last year and a subsequent spike in interest rates.

With the impact from the fuel price hike now eased and interest rates falling back sharply, the economy was able to stage a recovery in the third quarter, the bank was quoted by AFP as as saying.

"Recent data is beginning to confirm a sharp upturn in growth," it said, pointing to indicators such as car, motorcycle and cement sales in August and September.

It also noted that imports of capital goods began to recover in the third quarter.

"The key economic challenge is to maintain this growth through 2007 and into the longer term. This will require investment and financial sector reforms that trigger business confidence and increase public and private infrastructure spending enabling the country to overcome energy and transport constraints," it said.

It said Bank Indonesia should have room for further interest rate reductions going into 2007 as inflation continues to fall, and this should spur corporate investment and an increase in consumer spending. (*)
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