OECD Revises Indonesia’s Growth Downward for 2011
The OECD has reduced its forecast on Indonesia’s economic growth to 6.3 percent this year to better reflect the impact of the global slowdown.
Mario Pezzini, director of the OECD Development Center, said on Tuesday that Indonesia’s $700 billion economy would expand by 0.3 percentage-point less than the OECD had forecast in May. The government has forecast 2011 growth at 6.5 percent.
Indonesia’s economy expanded 6.5 percent in the three months ending in September this year, the same pace as the first two quarters. It grew 6.1 percent in 2010.
Still, Southeast Asia will see robust economic growth over the next five years, led by Indonesia, as the region’s increasing reliance on domestic demand buffers it from global economic volatility, the OECD said in a report on Southeast Asia’s economic outlook, released on Tuesday.
“Indonesia is likely to lead the region’s growth and will keep the strong momentum, thanks to its buoyant domestic demand,” Mario told reporters in Jakarta.
The domestic economy and neighboring nations including Malaysia, the Philippines, Singapore, Thailand and Vietnam will grow at an average of 5.6 percent from 2012 to 2016, the OECD said.
Private consumption typically accounts for the bulk of gross domestic product (GDP) in most emerging economies. For Indonesia, private consumption accounts for about 60 percent.
But “the region needs to be vigilant over economic management against the background of continued global uncertainties and natural disasters,” the report said.
Citing the report, the OECD’s Mario warned that poor infrastructure, low quality of human development and labor laws would pose the biggest challenges for economies in the region.
The OECD, or Organization for Economic Co-operation and Development, is a grouping of 34 advanced economies. Indonesia is not included in the group.
“Infrastructure investment can become a bottleneck to growth in several economies in the region in especially in Indonesia,” Mario said.
Poor development of infrastructure such as airports, seaports and roads in Indonesia has been blamed for less-than-expected growth. The government forecasts Rp 4,000 trillion ($435 billion) in infrastructure spending needs through 2014.
Mario said the global slowdown would affect regional growth to some extent.
“The impact would be limited and short lived,’’ Mario said. “The slowdown in most economies has become apparent since the second quarter of 2011, with deterioration in business and consumer sentiments and a negative reaction in financial markets.’’
Mario said Indonesia needs to boost its education system.
“Indonesia needs to pay more attention to improving the outcome of tertiary education, in particular to ensure that the skills of graduates correspond to those required by industry,’’ Mario said.
He also encouraged the country to revise its labor policies.
“Reducing the rigidity of labor regulations is also necessary to increase employment,” Mario said. “Overly high minimum wages can also discourage hiring by employers and distort the flow of workers among different sectors.”
Deputy finance minister Mahendra Siregar said the Indonesian government would take the OECD’s input into consideration.
Another article that points out although Indonesia is doing great at the moment, but it still has a lot of homework to do. Anymore additional homework from you?