JAKARTA - INDONESIA'S economic growth is set to slow to 4.5-5.5 per cent in 2009 because of weak commodity prices, while easing inflation should allow to lift domestic spending with more rate cuts, the finance minister said on Sunday.

Indonesia's economy grew 6.3 per cent in 2007, the fastest pace in a decade, on the back of a commodity boom. The government expects growth to be about 6 percent this year, the minimum seen necessary to make a dent in unemployment, currently around 10 per cent.

The finance minister said that exports and investment growth would slow to single digits next year and interest rates should also fall further.

'Weakening growth will be accompanied with weakening inflation, which is probably good for us,' Ms Indrawati told members of the Indonesian Chamber of Commerce, adding that 2009 inflation should slow to 6-7 per cent.

In a bid to cushion the impact of global economic crisis, Indonesia's central bank cut its benchmark interest rate by a quarter of a percentage point to 9.25 per cent on on Dec 4 and has reduced fuel prices twice to ease inflationary pressures.

Annual inflation slightly dipped in November to 11.7 per cent from 11.8 per cent in October and Ms Indrawati said prices may drop month-on-month in December, bringing the annual rate to below 11 per cent.

The challenge next year was to raise domestic spending power, the finance minister said, as exports of key Indonesian commodities such as palm oil, rubber and nickel slow.

She said domestic consumption should grow 5 per cent next year helped by government spending programmes and with parliamentary and presidential elections in 2009.

A Reuters poll on Dec 11 had forecast the economy would slow next year to a seven-year low of 4.8 per cent before picking up to 5.6 per cent in 2010.

As many as 700,000 jobs are under threat in Indonesia's manufacturing and commodities sectors next year because of the fall-out of a global financial crisis and credit crunch, according to the International Labour Organisation. -- REUTERS