DBS Bank: Indonesia's Household Consumption Accelerates on Election
Singapore-based DBS Bank predicts that household consumption in Indonesia will grow 5.6 percent (yoy) in the first semester of 2014, which is slightly higher than the growth recorded in the last three years. Gundy Cahyadi, economist at the DBS Bank, said that the main reason for this accelerated household consumption is the legislative election that will be held on 9 April 2014. Traditionally, consumption peaks in times of elections. Household consumption is one of the main pillars of Indonesia's economic growth, accounting for 55 percent of GDP.
In 2013, the Indonesian government and the central bank (Bank Indonesia) deliberately curbed demand from Indonesia's population as the pace of imports was partly responsible for a trade and current account deficit, thereby putting serious pressure on the Indonesian rupiah exchange rate amid last year's capital outflows as global investors pulled funds from emerging markets after speculation emerged that the US Federal Reserve would wind down its quantitative easing program. But despite the higher interest rate policy of the central bank and the sharply depreciated rupiah exchange rate (which fell over 21 percent against the US dollar in 2013, causing expensive imports), domestic consumption remained relatively stable. According to data from Bank Indonesia, retail sales in Indonesia grew 20 percent (year on year).
The DBS Bank expects that Indonesia's economy will grow about six percent in 2014.
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