Indonesia To Be Top Ten Economy By 2025: Citi

By: EW News Desk Team   Date: 22 March 2013

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22 March 2013

The Indonesian economy could grow to be among the world’s top ten largest by 2025 if more investments are placed in manufacturing, infrastructure development and urbanisation, said a report by Citi Research on Thursday, noting a 128 percent jump in foreign direct investment from 2009-2012.

The note, as cited by Reuters, said that Indonesia’s market size and growth prospects remained a top draw for foreign investors, though the government must still accelerate and restart stalled infrastructure projects in order to catch up with its peers.

At present, Indonesia is the 16th largest economy in the world according to nominal GDP and the 15th going by GDP (PPP). Last week, the World Bank forecasted that the Indonesian economy would grow by 6.3 percent this year, though it warned that the risks to growth were increasing due to a failure to invest in infrastructure, as well as income inequality.

Southeast Asia’s largest economy was also ranked 59th in the World Bank's logistics performance index, while the Financial Times said that Indonesia’s economic boom had left behind approximately 60 percent of the labour force, who do informal odd jobs such as driving motorbike taxis or picking trash.

Citi predicted that the demand for homes, retail products, vehicles, education and white goods would increase, in the near future, at a faster rate than for basic goods.

If more investments are pumped into the nation’s infrastructure, “the auto, banks, media, cement/toll roads, property and consumer sectors would be the biggest beneficiaries,” the report noted.

Meanwhile, the World Bank also warned Indonesia on increased domestic risks, including soaring inflation, which may undermine consumer purchasing power.

Inflation is expected at 5.5 percent this year and 5.2 percent in 2014, the World Bank projected.

"The outlook for CPI inflation is dominated by the risk of upside pressures from policy decisions relating to minimum wages, trade restrictions on foods, as well as the temporary effects of electricity tariff subsidy reform," the World Bank said.

Many economists have now urged President Susilo Bambang Yudhoyono to cut subsidies for fuel and other goods, though Reuters reported that Yudhoyono is reluctant to take these measures, especially with national elections due next year.

The World Bank estimated that Indonesia could face a 1.9 percent fiscal deficit of GDP in 2013 due to higher projected fuel subsidy spending and potentially weaker revenue collection.

Related: Indonesia Could Overtake Germany and UK By 2030

Related: Indonesia Returns To Investment Grade After 14 Years

Related: Indonesia: The Next Economic Superpower?

“The weaker commodity market conditions, which have been in place since mid-2011, may continue to impact aggregate investment spending with a lag, particularly in capital-intensive resource sectors where investment is lumpy,” the World Bank said.

Investments are “likely to face some headwinds from ongoing, and possibly further, regulatory uncertainties and political noise as the 2014 elections approach,” it added.

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