Indonesia's Q4 growth nears fastest pace in 10 yrs

Indonesia, South-east Asia's biggest economy, expanded near the fastest pace in 10 years as declining borrowing costs encouraged companies to invest and spurred consumer spending.

The US$364 billion economy grew 6.25 per cent in the three months ended Dec 31 from a year earlier, after expanding 6.5 per cent in the third quarter, the Central Statistics Bureau said yesterday. That's less than the median 6.4 per cent forecast of 16 economists surveyed by Bloomberg News.

Record coal prices and surging income from sales of cocoa and cooking oil are encouraging spending on cars, motorbikes and mobile phones. A 4.75 percentage point cut in borrowing costs since May 2006 has also stoked investment at firms like PT Lautan Luas, a chemical maker.

'2007 was a year of improving domestic demand, boosted by a strong external environment,' said Stephen Schwartz, chief representative of the International Monetary Fund in Indonesia. 'For 2008, the question is to what extent the domestic demand momentum can offset a weaker external outlook?'

The government cut its economic growth forecast for this year to 6.4 per cent from 6.8 per cent, President Susilo Bambang Yudhoyono said yesterday. The economy grew 6.32 per cent in 2007, the statistics agency said. The IMF expects economic growth to slow to 6.1 per cent, Mr Schwartz said.

Fitch Ratings on Thursday raised Indonesia's credit rating to the highest in a decade, citing the buoyant outlook for the economy, rising foreign-exchange reserves and improved government finances. Private consumption, which represents about 70 per cent of the economy, rose 5.6 per cent in the fourth quarter, up from 5.3 per cent in the third and the fastest pace in almost four years.