SINGAPORE (Feb 13): Indonesia has been and remains a good story among large emerging economies. However, the news flow has fallen a tad short of expectations of late. Indonesia’s economy grew about 5% in 2016, rising from 4.8% in 2015 but below the 6%-type rates experienced from 2010 to 2012, which had raised hopes that Indonesia could enjoy an acceleration in economic growth to above 7%. In addition, foreign investors have been watching the prosecution of Jakarta governor Basuki Purnama (Ahok) on charges of blasphemy with some concern, wondering whether this heralds a rise in religious intolerance.

Our take is that, occasional setbacks notwithstanding, Indonesia is putting in place the foundations for higher growth. There are disconcerting political developments indeed, but we are also confident that Indonesia’s leaders will contain these risks.

Cyclical turnaround in the economy in the works
Despite the loss of momentum in the last quarter of 2016, forward-looking indicators are now pointing to a turnaround. The Organisation for Economic Co-operation and Development’s composite lead indicator for Indonesia has been rising strongly. At current levels, it is suggesting that economic growth will be above Indonesia’s trend rate of 6% in the next nine to 12 months. Supporting this, purchasing manager surveys show new orders in the manufacturing sector growing again in January, after four months of decline.

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