World Bank lowers outlook for Indonesia economy this year

INDONESIA's economy is set to grow by below 6 per cent this year, the lowest in four years, the World Bank said on Tuesday in a sign of how South-east Asia's largest economy remains vulnerable to the volatile global environment.

This reduced forecast reflects a slowdown in growth of domestic demand as well as continued downward pressure on commodity prices and export revenues, the Bank added.

It also comes in spite of a raise in the price of subsidised fuel by 44 per cent last month that will see inflation go up by over 7 per cent in July.

The bank's economists are concerned that a rise in global energy prices or a weakening of the rupiah could see the subsidy bill remain high, however.

"Although monetary and fiscal policies have been responsibe, other pressures are emerging, requiring readiness for further policy adjustments to safeguard macroeconomic stability and maintain Indonesia's growth momentum," said lead economist Ndiame Diop.

The bank also warned of the risk of a more pronounced slowdown, due to further weakening of global commodity prices and a weak rupiah.

zakirh@sph.com.sg