Boston, MA -- (SBWIRE) -- 10/24/2013 -- Reduction of Fuel Subsidies Will Lower Growth In Short Term

A key development in June has prompted BMI to revise its economic outlook for Indonesia this year. On June 22 the government raised the prices of subsidised premium petrol and diesel by 44.4% and 22.2% respectively. This led to an inflation spike (the annual rate of inflation rose to 8.6% in July) and to a tightening of monetary policy by Bank Indonesia (BI) which raised the benchmark interest rate by 25 basis points in June and by another 50bps in July. BMI's view is that both moves are a necessary and healthy response to some of the imbalances in the Indonesian economy. However, they will cool consumer demand and reduce economic growth. Signs of a slowdown were already making themselves felt, with Q213 GDP growth decelerating to 5.8% year-on-year, down from 6.0% y-o-y in Q113. Political risk is also rising a little: the government of President Susilo Bambang Yudhoyono arguably should have tackled the costly fuel subsidies issue much earlier in its term, and now seems to be entering something of a policy paralysis prior to the 2014 general elections. As a result of all these factors we are reducing our GDP forecast for 2013 as a whole to 5.8% (down from 6.1% in our last quarterly shipping report). Given the underlying resilience of the Indonesian economy, we expect this to be only a transitory 'dip', with GDP recovering again to 6.0% in 2014 and 6.5% in 2015. Over the next five years annual GDP growth is set to average 6.2%, confirming the country's status as one of the top performers in Asia.

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We have trimmed back our shipping and ports forecast to take account of slower GDP and foreign trade growth. On the medium to longer term we continue to think that the key to sustainable growth is investment in port infrastructure, including road and rail links in the hinterland areas. We are encouraged to see some evidence of progress on this front.

Headline Industry Data

- 2013 Tanjung Priok total tonnage forecast to grow 6.0% to 53.093mn tonnes, with average growth of 5.5% expected over our forecast period to 2017.
- 2013 Palembang total tonnage forecast to grow 5.9% to 12.403mn tonnes, with average growth of 4.3% over our forecast period.
- 2013 Tanjung Priok container throughput forecast to grow a strong 10.4% to 86.844mn twenty-foot equivalent units (TEUs), with average growth of 10.3% over our forecast period.
- 2013 Palembang container throughput forecast to grow 8.6% to 105,479 TEUs, with average growth of 6.5% over our forecast period.
- Indonesian foreign trade (exports + imports) expected to grow by 3.9% in real terms in 2013, down from 4.3% in 2012.

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