The Case For Indonesia

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  The Asia Report is supported by Cathay PacificIndonesia may be the market to watch in Asia in 2011, if projections in the Asian Development Bank’s latest report come true.

The country looks likely to follow on strength from 2010, where GDP growth was at 6.1%, with strength in 2011. The Asian Development Bank projects growth of 6.4% this year.

Indonesia’s consumer surge

The strength of the country’s labour market is expected to lead to increased consumer spending in 2011.  But a continued rise in investment growth hinges on higher levels of confidence in the country and credit growth, according to the ADB.

Indonesia consumer confidence

Photo: ADB via CEIC Data Company

Bank Indonesia’s consumer confidence index rose sharply in January 2011, so it looks like consumers are holding up against higher inflation.A better investment environment

The Indonesia government cut the corporate income tax rate to 25% in 2010, a boon to foreign investors. Along with other domestic reforms, these tax changes saw Indonesia bumped up 10 spots on the World Economic Forum’s Global Competitiveness Report.

The Inflation Risk

While Indonesia’s investment climate looks strong, it faces the same problem many other Asian emerging markets do. Inflation was at about 7% in January and February this year and eased to 6.65% in March on a drop in food prices. The concern however is that core inflation inched higher this past month.

If the central bank is forced to aggressively tighten to tame this rise, like the People’s Bank of China is now doing, the consumer surge may dip as a result.

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