ADB raises Indonesia 2007-08 growth forecast to 6.2-6.4 pct

Jakarta (ANTARA News) - The Asian Development Bank (ADB) said Monday it had slightly upgraded its growth forecast for Indonesia for 2007-08 due to stronger than anticipated growth in private consumption and investment.

The ADB said it lifted its 2007 growth forecast to 6.2 percent from 6.0 percent previously and its 2008 forecast to 6.4 percent from 6.3 percent.

But the ADB's revised estimates were still lower than the government's own forecast of 6.3 percent gross domestic product (GDP) growth for 2007 and 6.8 percent growth for 2008.

Indonesia's economy, Southeast Asia's largest, expanded by 5.5 percent last year.

It expanded 6.1 percent in the first half of 2007, mainly driven by private consumption, a recovery in private investment and solid expansion in net exports.

"First-half private consumption and investment showed greater strength than expected, and this is likely to be maintained in the second half, leading to an upward revision in the full-year GDP growth forecast to 6.2 percent," the multilateral agency was quoted by AFP as saying in its latest Asian Development Outlook 2007.

It said GDP growth is projected to edge higher in 2008, driven mainly by domestic demand.

The reductions in domestic interest rates since May 2006 and an improving investment climate are set to push investment growth next year, while a recovery in consumer confidence will lead to an acceleration in private consumption expenditure, it said.

Bank Indonesia has trimmed its benchmark interest rate by a cumulative 450 basis points since May last year to 8.25 percent, but has refrained from cutting the rate at its last two meetings as inflation has picked up.

ADB said Indonesia's economic growth will be supported by higher rates of credit expansion to the private sector as bank and corporate balance sheets strengthen. Government infrastructure outlays are also expected to increase.

"These positive developments are likely to be partly offset by a smaller surplus in net exports as imports rise in response to stronger investment and consumption demand, and as exports moderate in line with a projected decline in global nonfuel commodity prices," it said.

It said the domestic risks to its forecasts are headed by inadequate effective action on structural reforms, insufficient investment in infrastructure and regional governments' inability to implement projects.

Earlier this year, it said Indonesia's regional governments were holding an estimated 2.5 percent of GDP in cash deposits, reflecting their weak capacity to carry out projects.