Rising private consumption and stronger inter-regional trade will spur growth in developing Asia in 2013 and 2014, as economic activity in the US and Europe remains in the doldrums, The Asian Development Bank (ADB) says in a new launched report.
“The rebound in People’s Republic of China (PRC) and solid momentum in Southeast Asia are lifting the region’s pace after the softer performance of 2012,” said ADB Chief Economist Changyong Rhee. “Domestic spending, in particular consumption, is the main driver of the recovery, and is a welcome shift from the reliance on the markets of advanced economies.”
ADB’s flagship annual economic publication, Asian Development Outlook 2013 (ADO 2013), forecasts gross domestic product (GDP) growth in developing Asia of 6.6% in 2013 and 6.7% in 2014. The region grew 6.1% in 2012.
As Southeast Asia’s biggest economy, Indonesia’s economic growth is forecast to pick up to 6.4% this year and 6.6% in 2014. Private consumption is expected to quicken in 2013, fueled by rising employment, a 30% increase in average minimum wages, a 7% rise in public service wages, and a tax break from January 2013, when the government raised the income threshold at which income tax is payable.
With parliamentary elections scheduled for April 2014 and a presidential election in July 2014, election-related spending is likely to contribute to consumption from the second half of 2013.
“On the back of robust consumption, rising investment and increased intraregional trade, Southeast Asia’s growth momentum continues. Indonesia is on a more sustained path of long-term growth. However, this is not a time for complacency. Continued efforts are needed to improve the investment climate, and reduce regulatory uncertainly and red tape,” said Jon D. Lindborg, ADB’s Country Director for Indonesia in a press conference.
ADO 2013 notes that the country recorded growth of 6.2% in 2012, based on sustained private consumption and stronger investment. Private consumption picked up by 5.3%, the strongest in four years, and it contributed almost half of the total GDP growth on the expenditure growth. It is boosted by increases in employment and wages, as well as lower inflation.
Indonesia has experienced strong economic expansion since recovering from the 1997 Asian financial crisis. Despite an economic slowdown in the advanced economies, gross domestic product growth edged up moderately to 6.5% in 2011, from 6.2% in 2010.
However, some significant challenges for the country’s development remain, including how to ensure that the economic gains benefit all. The report notes that while the 6-year strong economic growth has helped lift 6.4 million people out of poverty, there are still 29 million Indonesians living below the government’s poverty line. In the event of even a slight reduction in their incomes, another 30 million would become poor.
According to ADO 2013, the Indonesian government has a good start in removing obstacles in infrastructure developments. These include the recent completion of regulations for the Land Acquisition law, a significant increase in the central budget allocation for infrastructure development in the eastern provinces, and expansion of some major ports.