International | Jul 27 2006
By Chris Shaw
While previously taking an optimistic view on the potential for improvements in the Indonesian economy, ANZ Banking Group has now scaled back its economic growth estimates to reflect higher than expected inflation and interest rates.
The bank had expected GDP growth of 6.4% for 2007 and an inflation rate of 7.5%, but these estimates were based on the likelihood of a strengthening in both investment growth and private consumption.
With the economy having to deal with a number of events such as earthquakes, tsunamis and a drought the bank has been forced to revise its estimates, with GDP growth this year now expected to be 4.6% and inflation 14.7%. Its new 2007 forecasts will also fall short of its previous estimates, the bank now forecasting 2007 GDP growth of 5.5% and inflation of 8.9%.
Not helping is the fact direct foreign investment rose just 0.9% for the first half if this year, while fixed investment also remains below long-term averages, which has the effect of limiting the economy’s growth potential.
Despite this revised outlook from ANZ, ABN Amro takes the view the Indonesian economy may have bottomed as there are some signs domestic consumption is beginning to pick-up.
The broker points out in year-on-year terms the figures continue to look bad thanks to the increase in fuel subsidies last year and the effect that had on domestic spending, but monthly figures suggest the economy may be now near the bottom.
As a result, it suggests investors begin to take a more positive approach to the Indonesian market generally and while indicating there is no need to rush to establish positions, a re-evaluation of underweight positions may be warranted. It sees potential buying opportunities emerging among the larger blue-chip companies, pointing to PGN and Semen Gresik as being among its current top picks.
