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As global demand for Indonesian products decreases in 2007 in
line with a predicted slowdown in the world's economy, the country's
domestic market will become more important, a Rabobank study says.
"So far, the increase of commodity prices has contributed much to the
country's exports. This condition will eventually influence the global
demand for the country's products," said local head of research Jan
Lambregts (pictured left with global research head Bernard Walshots).
Adjustments to commodity prices will take place as global demand
weakens following a predicted slowdown in the world's major industrial
economies, especially the U.S. and China, Lambregts said.
On Monday, the Central Statistics Agency (BPS) reported the country
continued to book record exports, with accumulated value from January
to August reaching US$64.63 billion, a 17.13 percent rise compared to
the same period in 2005.
"Global demand will decrease but the potential of the domestic market
will become more significant in 2007. We will see inflation and
interest rates improve," Lambregts said.
Domestic consumption would improve in accordance with the downward
trend in these rates, which will in turn help drive the country's
economy.
The country already heavily relies on local consumption to drive its
economy, with offshore investments yet to flow in as robustly as
expected. Net exports are another economic driver, although still
relatively small percentage-wise, making up only 8 percent of the
country's gross domestic product.
"The financial sector in Indonesia is also a lot better than what it
was 10 years ago. Of course there are still risks, but they are much
lower," Lambregts said.
The Rabobank outlook predicts Indonesia's GDP growth to accelerate in
the second half of 2006, to average 5.3 percent at the end of the year,
and rise to 5.8 percent in 2007.
"We are expecting the BI rate to be at 8.25 percent on average for 2007
and that inflation will drop more rapidly, which will improve
investment returns. This is very important," he said.
At present, the BI rate stands at 11.25 percent.
The Rabobank group is the only private bank with two triple A
predicates from Moody's and Standard and Poors and is the largest
financing company in the Netherlands.
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