In its research report released last week, the bank revised Indonesia’s economic growth to 6.1 percent from its previous 6.3 percent, far lower than the Indonesian government’s economic growth assumption of 6.8-7.2 percent.

Citibank warned policymakers in the country over rising inflation due to the possible increase in electricity rates next year, predicting that inflation in Southeast Asia’s largest economy might reach 5 percent if the hike in electricity rates was put into practice.

The House of Representatives approved last Monday a government proposal to gradually raise electricity rates to 15 percent by the end of 2013.

Citibank revised its rupiah forecast to 9,850 per US dollar from the previous 9,750, expecting Bank Indonesia (BI) to opt for rupiah depreciation to ease strains on the country’s trade balance. “The policy bias will remain mindful of trade fundamentals,” Citibank Indonesia’s country economist, Helmi Arman, wrote in the report.

Citibank estimated that Indonesia’s current account deficit next year would top 1.7 percent of gross domestic product (GDP), revising its earlier prediction of 1.5 percent. Indonesia’s current account deficit stood at 3.1 percent of GDP in the second quarter, a record high since 1996 when it topped 3.5 percent.

Meanwhile, economic uncertainties in Europe and the US are expected to continue to depress the volume of global trade next year. Citibank’s report noted that the recovery of the US economy remained “disappointing compared to official expectations and previous cycles”.

Citibank also expects a break-up of eurozone countries next year, predicting that Greece will quit the union and stop using the euro.

The monetary stimulus packages implemented by central banks in Europe and the US to jolt their stalling economies, which come in the form of so-called quantitative easing, were “likely to be only moderately successful”, the report said.

“The Federal Reserve’s quantitative easing may help prop up portfolio inflows [into Indonesia], yet on the other hand prospects of a strong export rebound in 2013 remain dim,” added Helmi, referring to the US central bank.

University of Indonesia (UI) economist Lana Soelistianingsih said that Citibank’s estimation of economic growth was “way too pessimistic”. She argued that Indonesia would achieve at least the target set by BI, the country’s central bank, which put the country’s economic growth assumption at between 6.3 to 6.7 percent, thanks to its consumption-driven economy.

“In the second quarter, consumption and investment accounted for 86 percent of our GDP. With our huge consumption, investment and possible additions to government spending, I think we will have sufficient ammunition to offset the likely decline in exports,” she said over the weekend.

She agreed, however, that prevailing global uncertainties in the West would continue to put pressure on the country’s trade balance, expressing specifically her concern over the slowing economy of China, Indonesia’s one of biggest trading partners and one of the world’s largest importers of raw commodities, such as crude palm oil and coal.

“If next year China’s [economy] grows by only 7 percent as at present, then demand for our commodities will remain sluggish,” said Lana. (sat)

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