Strong Domestic Demand
In August 2007, the dRi Coincident Economic Index (CEI), which tracks the current state of the economy, rose further to 106.41 from 106.12 in July 2007 (up by 0.27% month-on-month). The CEI has now risen on six straight occasions, strongly suggesting that the economy is continuing to expand further.
The dRi Leading Economic Index (LEI), which moves ahead of the Coincident Index (around 6 to 12 months), fell to 110.28 in August from 110.72 in July 2007 (down by 0.40% m-o-m). The fall, however, does not mean that the Indonesian economy is heading toward a slowdown in the near term. The fall in the LEI, we believe, is only temporary, and the LEI is likely to rebound in the coming months.
Improving purchasing power, combined with relatively low interest rates, have spurred domestic demand. Against this backdrop, investment activities have also increased significantly. As a result, the engine of economic growth is more balanced than before, thus meaning that the current economic expansion is more sustainable than before.
All in all, we believe that the current economic recovery is sustainable. And we maintain our forecast that the Indonesian economy is likely to continue picking up its growth pace for the rest of 2007. As such, we reiterate our forecast that the Indonesian economy will grow by 6.23% in 2007. And the expansion is expected to continue in 2008, in which year we forecast the economy to grow by 6.33%.