Macroeconomic Forecast Indonesia

Growth is set to ease to 5.3% in 2006 from 5.6% in 2005 amid high inflation and interest rates. Inflation will average 12.6% in 2006 creating uncertainty for consumers and investors, damaging confidence. The one-month Bank Indonesia rate will average 10.75 for the year and will deter borrowing, particularly as real interest rates turn positive later in the year. Inflation will moderate as the year progresses and, correspondingly, consumption and investment will pick up. Monetary easing, which has already begun, will also help to stimulate flagging domestic demand. In all, recovery will begin in the second half of the year,

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