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Indonesia - Economy

Whitaker's Almanack Version

Financial Outlook

The economy is likely to have slowed sharply in 2013, reflecting external developments and government measures to cool overheating and rising prices. Both the World Bank and the Asian Development Bank estimated growth at under 6% during the year. Indonesia’s exports were hurt by slowing demand from key markets and a drop in commodity prices, while domestic demand was affected by rising fuel prices and rising interest rates. Fuel prices surged in 2013 after the government removed its subsidy program. Indonesia was also among the emerging economies hit by outflows of investors’ money, triggered by growing speculation that the US Federal Reserve would start to taper off its key stimulus program and start raising interest rates sooner than previously thought. This caused the rupiah to weaken sharply against the US dollar, putting further pressure on the central bank to raise interest rates. Countries such as Indonesia with large current account deficits were particularly badly affected, particularly after the Federal Reserve did indeed begin to taper in January 2014. In December 2013, the World Bank forecast that the economy would grow by 5.3% in 2014. Domestic demand is likely to ease in the face of tighter financial conditions, while commodity prices and the terms of trade are also likely to prove less supportive than in recent years.

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