Indonesia's
exports have been hurt by slowing demand from key markets and a drop in
commodity prices. Meanwhile, domestic demand has been impacted by
rising fuel prices and rising interest rates.
Fuel prices in the country surged
earlier this year after the government
removed its subsidy programme. Petrol
prices went up by 44% while diesel prices rose by 22%, leading to higher
transportation costs and electricity bills.
Higher rates
Indonesia,
like many other emerging economies, was
also hurt after investors withdrew money from emerging markets earlier this
year. The pullout was triggered by growing speculation that the US
central bank will start to taper off its key stimulus programme and start
raising interest rates sooner than previously thought.
In
Indonesia's case, concerns of slowing economic growth and a widening current
account deficit further contributed to
that pull out. All of this has hurt the Indonesian currency which
has dipped nearly 17% against the US dollar since May this year.
A weak currency coupled with rising consumer
prices has resulted in the central bank raising the cost of borrowing in
the country. The latest raise in
September saw the key rate rise to 7.25%, the highest level in more than
four years. Analysts said that the combination of all these factors had hurt domestic consumption and impacted growth.
In
September, the country's central bank
also lowered its growth forecast. It now expects the economy to grow by
5.5-5.9% compared with its earlier projection of growth of 5.8-6.2%.
