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Government spending can spur higher growth in Indonesia

Staff writer |
The government’s increased capital spending by close to 50 percent year-on-year in real terms supported growth in Q3 and could further boost growth in 2016 if the pace continues, says World Bank.

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Additional reforms as seen in the 7 policy packages of regulatory reforms may also improve investor sentiment, although domestic household consumption – the main driver of growth in Indonesia – is growing at a slower pace than in previous years and external trade remains weak, according to the December 2015 edition of the Indonesia Economic Quarterly, or IEQ.

The forest fires this year have also constrained GDP growth, costing Indonesia an estimated $16.1 billion, equivalent to 1.9 percent of GDP or more than twice the costs of reconstruction in Aceh after the tsunami.

The GDP of Kalimantan, the worst affected island, declined by 1.2 percent quarter-on-quarter in the third quarter, in part due to the fires and haze. Growth in East Kalimantan declined by 3.5 percent year-on-year, and in Papua by 0.6 percent year-on-year.

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