Indonesia's economic growth may see greater impact from rising inflation: UOB

INDONESIA'S economic growth will likely take a greater hit from rising inflation amid ongoing uncertainty, said UOB Global Economics & Markets Research.

In a report on Friday (Mar 11), economist Enrico Tanuwidjaja raised his forecasts for Indonesia's inflation rate to 3.3 per cent from 2.4 per cent, as he expects the Ukraine conflict will drive up energy prices and food prices.

The forecast remains within the Indonesian central bank's official target of between 2 and 4 per cent, although it is slightly above the midpoint.

Given Indonesia's large population size, changes in prices of food commodities could be the largest contributor to the inflation rate, while oil prices - if they were to settle around US$100 per barrel - could further drive up inflation, he said.

The economist noted that from a historical standpoint, even though the impact on the overall inflation "seems quite acceptable", a sudden upswing in consumer prices - especially during pandemic recovery - could be detrimental to consumer confidence and hit consumer spending and company investment plans.

Hence, Tanuwidjaja lowered his forecasts for Indonesia's gross domestic product (GDP) to be between 4.6 per cent and 5 per cent, from his earlier estimate of between 4.7 per cent and 5.3 per cent.

For 2023, the economist also raised inflation forecasts to around 3.5 per cent and lowered growth forecast to around 5 per cent from 5.2 per cent.

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