T

he government has expressed optimism that the economy will see a significant upside in the second half of this year, as the well-anchored inflation will provide a stronger boost to private consumption.

Gross domestic product (GDP) growth will average at least 5.6 percent in the third and fourth quarter this year, taking full-year economic expansion to 5.5 percent, or in line with the target set in the revised 2014 state budget, Finance Minister Chatib Basri told a meeting with lawmakers on Thursday.

Chatib predicted the economy to expand 5.3 percent in the second quarter, only a slight pickup compared to the 5.2 percent posted in the January-March period, as exports continued to drag Indonesia'€™s economy.

However, '€œthe outlook for our exports will be brighter ahead,'€ the minister told reporters after the meeting, when asked about the likely factor that would propel the country'€™s GDP growth in the second half of this year.

In the third and fourth quarter, the economy will rebound not only because of the likely exports but also stronger domestic consumption due to the benign and well-anchored inflation, according to the finance minister.

'€œOur economy will be propelled by private consumption, which will be boosted by the fact that inflation may fall below 5 percent this year '€” remember, private consumption accounts for 50 percent of our GDP,'€ he explained.

Indonesia'€™s inflation rate expanded only 0.4 percent in June, the lowest monthly inflation level in five years. Lower inflation will translate into stronger purchasing power among Indonesians, thus boosting their ability to consume more goods and services.

Nevertheless, economists have shown pessimism that Indonesia could see a significant economic pickup in the second half this year and meet such an economic growth target.

For instance, both the World Bank and the Asian Development Bank (ADB) have estimated the archipelago to grow a maximum 5.3 percent this year, as they argued that the lagging global economic recovery, coupled with the tight-bias monetary policy environment locally, would continue to serve as drag to growth.

In addition, there would also be less growth contribution this year from government spending, which accounts for 9 percent of Indonesia'€™s GDP, as the government has slashed Rp 43 trillion (US$3.61 billion) from the allocated budget to ministries and government institutions in the revised 2014 state budget.

'€œAs indicators pointed to the slower-than-expected economic recovery in the US and the European region, it would be very difficult for our exports to recover this year,'€ said Edimon Ginting, the deputy country director of ADB in Indonesia.

Bank Indonesia (BI), the central bank, has also estimated that the economy may only grow by between 5.1 and 5.5 percent this year, with risks tilted toward the downside.

'€œWe'€™re still calculating the figures, but there are still risks that it [the GDP growth] could go lower than such a range,'€ BI Deputy Governor Perry Warjiyo said on
Thursday. '€œThe economic slowdown was driven by the continuously weak external demand and low commodity prices, in addition to impact from the ban on exports of raw minerals.'€

Data from the National Development Planning (Bappenas) show that every 1 percent of economic growth could generate 220,000 additional jobs in the economy.

In addition, every 1 percent economic expansion would also mean that the state could reap additional revenue of between Rp 10 trillion and Rp 11.5 trillion, according to estimates from the Finance Ministry.