Indonesia likely to post sluggish growth rate in 2015

Indonesia's GDP growth averaged just 4.7% in the first half of the year, and the outlook ahead appears challenging. Constraints, both on the fiscal and monetary fronts, are reducing the policy flexibility for authorities to maneuver. Infrastructure investments have been slow to take off. The economy is expected to grow at 4.8% for 2015 (than earlier expectation of 5.1%) and 5.1% for 2016, estimates Bank of America.

Lower GDP forecast reflects more realistic expectations given the limited progress to date with few visible signs of a material pick-up. Investment growth of annual +4.2% is expected in 2015, a slightly improvement from 2014, adds Bank of America. Export weakness will likely persist for longer, primarily because of commodities. Chinese demand remains weak (-29% yoy in June) and commodity export prices remain in the doldrums (including coal, base metals, palm oil, LNG). Almost 60% of Indonesia's exports are commodities.