Economic and Social Update April 2008,William E. Wallace, Lead Economist World Bank, Indonesia April 1, 2008,Indonesia had sustained GDP growth in 2007,Largely on domestic drivers,With capital goods and construction up & consumption rebounding on falling interest rates,Investment (percentage change),Consumption (percentage change),Which, in turn, supported a turn around in employment growth (and reduced unemployment),Trends continued and services & Utilities continued strong while tradables were mixed,Domestic economy is drawing in imports; while higher commodity prices supported exports,But Indonesian exports are becoming less dependent on the US (and more on China and India),And commodities drove Indonesias stock market to one of the best performances in the world,Equity Price Indices 1/2/2006=100,But challenges are mounting as oil prices put pressure on fiscal policy,And energy subsides risk crowding out other spending (and distorting incentives),And Indonesias Fuel Prices are Very Low (even adjusted for income),While other commodity prices feed into domestic food costs (with rice an exception),CPI inflation Year-on-year percentage change,Wholesale & international rice prices,And borrowing spreads are rising, but remain low in historical perspective,Source: Bloomberg,And International conditions continue to deteriorate,Industrial production growth, year on year (%),OECD leading indicator,OECD IP,Source: World Bank, DECPG.,The global outlook for 2008,But developing and high-income country growth has been diverging,Developing countries,High-income countries,Source: World Bank, DECPG.,With developing countries providing more momentum especially to trade growth,United States,Developing countries,Source: World Bank, DECPG.,Contribution to global nominal import growth in US$, year on year (%-points),But Indonesian growth to slow moderately,Overview Indonesia,2007 was a good year Solid output growth Accelerating investment and Better employment outcomes. And there are strengths going forward Domestic momentum from credit expansion and growing infrastructure investment. Relatively smaller trade shares (i.e. more focus on the domestic economy) with trade concentrated in commodities where prices are expected to continue relatively strong Reduced government debt exposure (35% of GDP) Little exposure in the Banking system to the sub-prime debt But weaknesses as well Higher food prices feeding through into higher inflation and social insecurity A high subsidy burden on the budget from controlled domestic fuel prices High government borrowing needs,Thank You!,While growth and investment have fed into higher imports and commodity prices supported exports,