Asian Development Bank sees economic growth in developing Asia remains robust but prospects have further dimmed and risks to the region’ economies are rising - Photo by ADB

JAKARTA (TheInsiderStories) – The Asian Development Bank (ADB) estimates that Indonesian economy will grow by 5.2 percent this year and 5.3 percent by 2020 triggered by strong investment and domestic demand, said the agency on Wednesday (04/03).

According to ADB’ Director for Indonesia Winfried Wicklein, with support from solid macroeconomic management and strong domestic demand, Indonesia’ growth momentum is expected to continue in a healthy manner.

“To further promote sustainable and inclusive growth, a continuous focus is needed on increasing competitiveness, human resource development, and strengthening resilience,” he said in a written statement.

In his view, ADO reviews that strong domestic investment and good domestic consumption can offset weaker export growth in 2018, allowing the economy to grow 5.2 percent.

Meanwhile, domestic demand is believed to be going to remain strong in the short term due to the increase in employment in the formal sector and the expansion of government social assistance programs.

Inflation is likely to remain low and stable at 3.2 percent this year and 3.3 percent by 2020, thus helping maintain the momentum of growth in private spending.

ADB sees that strong domestic demand boosted imports of goods last year, while the growth of goods exports slowed. The increase in net services exports from increased tourism revenues and remittances was able to partially offset the decline in the trade balance, making the current account deficit (CAD) by 3.0 percent of gross domestic product (GDP) last year.

This year, CAD is expected to improve to 2.7 percent of GDP. So is the deficit in 2020, because the growth of imported goods and export goods is experiencing a slowdown, while revenue from tourism revenues is expected to continue.

ADO considers that economic growth this year and next year will be strongly influenced by two sectors. First, a number of major public infrastructure projects, both completed and completed, provide a strong foundation for increasing private investment.

Second, improvements to the investment climate such as downsizing the tax administration and simplifying business licensing are believed to further support investors’ positive sentiment.

“Strong investment is driven mainly by public infrastructure projects in the fields of transportation and energy. The growth of the industrial sector accelerated as output from mining increased, and exports such as apparel and footwear also strengthened, “said the report.

This ADB prediction exceeded the estimates issued by Moody’s Service Investor in February which said Indonesia’ economic growth might fall below 5 percent in the 2019-2020 period. The decline occurred due to the more moderate flow of spending by the Indonesian government and the slow pace of infrastructure development.

Meanwhile, growth across the developing Asian region is still strong, but is expected to weaken slightly this year and next year amid slowing global demand and continued trade tensions.

ADB estimates that growth in this region will decrease slightly to 5.7 percent in 2019 and 5.6 percent in 2020. In 2018, economic growth in the Asian region is 5.9 percent.

ADB detailed, if Hong Kong, China, the Republic of Korea, Singapore and China Taipei were excluded, the developing Asia region is expected to weaken to 6.2 percent in 2019, from the previous (2018) of 6.4 percent, and slightly down to 6.1 percent in 2020.

According to ADB, trade conflicts between the United States and China are still a major risk to the region’s economic projections, with prolonged negotiations causing protracted global uncertainty.

In China alone, structural changes in the economy from industry to services, as well as financial tightening as government efforts to control financial risks, are likely to make economic growth slow to 6.3 percent in 2019 and 6.1 percent by 2020, from the previous 6, 6 percent in 2018.

“China’s economy remains strong despite the slowdown in growth in recent years,” said ADB’ Chief Economist Yasuyuki Sawada said.

On the contrary, stronger consumption will make growth in India slightly up from 7.0 percent in 2018 to 7.2 percent in 2019 and 7.3 percent in 2020, with lower policy interest rates and income support for farmers who push up domestic demand.

Overall, South Asia will beat the performance of other sub-regions and is expected to grow 6.8 percent this year and 6.9 percent next year.

Growth will also improve in the Pacific from 0.9 percent in 2018, to 3.5 percent in 2019, as the return to the level of liquified natural gas production in Papua New Guinea, to normal levels after the 2018 earthquake. Growth is estimated back down by 3.2 percent in 2020.

Lower oil prices, along with the slowing growth of the Russian, will weigh on a number of economies in Central Asia. The growth of this subregion is estimated to slow to 4.2 percent this year and 2020.

Although currencies in the emerging Asian markets have improved somewhat since late 2018, the ADO survey shows that exchange rate volatility can be a problem, especially for countries that are dependent on US dollar-denominated debt.

Globally, ADB estimates that the combined economies of the United States, the European Union and Japan will grow at a slower pace of 1.9 percent this year and 1.6 percent in 2020. This is due to tighter fiscal and monetary conditions in the US and the possibility of a process the chaos in Britain’s exit (Brexit) from the European Union.

Written by Daniel Deha, Email: daniel@theinsiderstories.com