Behind the 5 percent economic growth trap

Winarno Zain
Commissioner in a publicly listed oil and gas service company

PREMIUM

Jakarta / Fri, December 28, 2018 / 11:09 am

Behind the 5 percent economic growth trap

Bank Indonesia sees Indonesia's economic growth in the third quarter as unlikely to be as strong as previously expected and only reach 5 percent year-on-year. (Antara Photo/Muhammad Adimaja))

The Indonesian economy can take a brief reprieve from the recent decision by the United States Federal Reserve (Fed). Although the Fed increased its benchmark interest rate by 0.25 percentage points last week — the fourth increase this year — Fed chairman Jerome Powell indicated that the Fed would not be aggressive in raising its interest rate in 2019. Analysts agreed two more interest increases by the Fed were possible in 2019 instead of three as previously projected.

The Fed interest rate increases have been one of the major destabilizing forces for the Indonesian economy that has brought about turmoil in the rupiah exchange rate in 2018.

But the Fed also gave an unpleasant signal for the economic outlook in 2019. It projected the US economy would slow down to 2.3 percent in 2019 from 3 percent in 2018.

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