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GDP growth should firm in 2017. Private consumption is underpinning activity. Infrastructure spending is rising, notwithstanding fiscal constraints, and external demand is firming. Private investment is growing only moderately.
Inflation is around the 4% mid-point of the central bank’s target range, and the exchange rate has been remarkably stable. Monetary policy remains on hold for now and is considered to be broadly neutral. But if the exchange rate remains stable while US monetary policy tightens, there would be scope to cut interest rates in 2018 to support activity. Fiscal outcomes will depend on the success of measures to improve tax collection.
Exports of commodities such as coal, rubber and copper ore are supporting growth. Being more open to foreign trade and investment would help to diversify economic activity and exports, in particular through greater engagement in global value chains. This would create high-skill, well-paid employment and facilitate technology transfers. In turn, a larger tax base would allow the social safety net to be expanded and make growth more inclusive.
Economic Survey of Indonesia (survey page)