Indonesia: Demand will buoy economy
Strong domestic demand continued to underpin growth in the first half of 2008. Investment was particularly robust. Imports are growing faster than exports, but the trade and current accounts are still in healthy surpluses. Inflation rose substantially following a hike in regulated domestic fuel prices in May.
Domestic demand, especially private consumption, is set to remain the main driver of growth in 2009. Exports are also likely to continue to perform reasonably well, despite the slowdown in global demand and falling commodity prices. Monetary policy is being tightened and measures to tackle worsening credit conditions are being taken. Outlays on fuel-price subsidies are being contained but the budget will continue to be vulnerable to fluctuations in international energy costs in the absence of a formal mechanism for adjusting domestic fuel prices.