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World Bank trims Indonesia 2017 GDP forecast, flags inflation risk

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The World Bank has revised down its growth forecast for Indonesia this year a touch, blaming global uncertainty and warning that rising inflation could crimp consumption in Southeast Asia's biggest economy.

[JAKARTA] The World Bank has revised down its growth forecast for Indonesia this year a touch, blaming global uncertainty and warning that rising inflation could crimp consumption in Southeast Asia's biggest economy.

In a quarterly report released on Wednesday, the bank projected Indonesia's growth at 5.2 per cent in 2017, down from its previous 5.3 per cent estimate.

Growth should be supported by higher private consumption, as well as investment and exports as global economic growth improves and commodity prices recover, the report said.

However, consumption may be pressured by rising inflation due to price increases in government-set prices, such as electricity tariffs. "Should inflation remain elevated longer than expected, consumer spending may be dampened, resulting in lower output growth," the report said. "In addition, Bank Indonesia may be compelled to tighten monetary policy, which would also cool investment growth." The World Bank expects 2017 inflation to be 4.3 per cent, up from last year's 3.5 per cent. The central bank target for 2017 is 3-5 per cent.

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Downside risks to growth may also come from unexpected changes in US monetary policy as well as increasing global protectionist sentiment, which may impact trade and financial flows, the report said.

Finance Minister Sri Mulyani Indrawati called the World Bank growth estimate "achievable". "The government will make every effort so this momentum can be achieved," Indrawati said. Indonesia's official 2017 growth target is 5.1 per cent.

The World Bank said Indonesia needs to stay the course on continued structural reforms "to avoid having the current relatively slower growth rates as the new normal".

Its forecast for 2018 Indonesian economic growth is 5.3 per cent.

REUTERS

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