Indonesia Expects Economy to Beat Expectations

Indonesia’s finance minister said Southeast Asia’s biggest economy could expand at a faster pace next year than initially forecast.

Economic growth may potentially be boosted by a pickup in investment in 2018, Mulyani Indrawati said in an interview in Jakarta. At the same time, she warned of significant headwinds from “domestic-orientated policies, especially in major countries”, such as the flow-through effects of US President Donald Trump’s plans to slash corporate tax rates, Bloomberg reported.

Indonesia’s economy is forecast to grow by 5.4% next year, the fastest pace of expansion in five years, with a budget passed by the parliament last week projecting a narrower deficit and higher tax revenue. Just days after the plan’s approval, Indrawati is already sounding more upbeat.

“The growth rate of 5.4% is based on a combination of on the one hand of a pick-up in exports, but with investment that is still a bit conservative,” Indrawati said. “If we assume that investment will pickup, then I think we will have much more upside.”

Total investment realization rose 13.7% to 176.6 trillion rupiah ($130.1 billion) in the third quarter, helped by a 12% jump in foreign direct investment, Indonesia’s Investment Coordinating Board said on Monday.

Indrawati’s optimism comes with some caveats. The economy faces other headwinds from rising interest rates in the US, with the currency coming under pressure in recent weeks. The rupiah has dropped more than 3% against the dollar since reaching a 10-month high in September.

“Of course the announcement by Trump on tax reform, lowering the rate, is again creating pressure for Indonesia,” Indrawati said. “A race to the bottom is worrying for all because it’s not a win-win game,” she said.