Indonesia new gov't, growing middle class to bolster chems demand

09:29 PM @ Wednesday - 12 November, 2014
SINGAPORE (ICIS)--Indonesia's economy is expected to slow down this year but in the long term, its growing middle-class population, as well as efforts by its new government to boost growth, is expected to bolster the country’s demand for petrochemicals, especially polyolefins, an economist said on Wednesday.

Southeast Asia’s largest economy is projected to grow at 5.10% this year compared with a 5.78% pace last year, said Joshua Pardede, an economist with Indonesia-based PT Bank Permata, at the 2nd ICIS Asian Polyolefins Conference in Singapore.

Indonesia is experiencing its weakest growth in five years. Its economic growth in the third quarter of 2014 slowed down to 5.01% from 5.12% recorded in the preceding quarter, because of slowing private consumption, falling investment and slower exports, he said.

Growth in private consumption slowed by 5.44% year on year in the third quarter, according to Pardede.

"The less vigorous expansion in household consumption since the election, which was the main driver of the economy in the first half of this year, has fully diminished," Pardede said.

Investments in Indonesia had moderated in 2014, as investors stayed on the sidelines to await the outcome of the elections, Pardede said.

Joko Widodo, a former governor of Jakarta – the Indonesian capital – won in the country’s presidential elections in July and was sworn into office on 20 October.

In the medium- to long-term, however, Indonesia's economic growth is expected to accelerate to around 6.0-6.5% and this will boost demand for chemical products amid efforts by the government to boost infrastructure spending and incentives for foreign investors to build new production capacities in the country, Pardede said.

The new government is also expected to soon cut the country's fuel subsidies in a bid to boost infrastructure spending in the country, he said.

While any cuts in the fuel subsidy will push up inflation for about six to seven months, consumer prices are expected to normalise thereafter and in the long-term, will help bolster the country's economy, the economist said.

Indonesia's demand for chemicals will therefore remain strong in the long term, with the chemicals sector projected to show the highest growth rate among all industries in the country, he said.

Foreign direct investment in chemicals in Indonesia has recorded a steady average annual increase of more 13% in the last five years.

"This is a clear indication of Indonesia's increasing attractiveness for foreign investments in the chemicals sector," Pardede said.

The domestic chemicals industry is able to supply around 3.6m tonnes of plastic a year, below the country’s total demand of 4.3m tonnes, according to Pardede.

In 2013, the country's plastic packaging industry grew by 8% to around $5.3bn, with the food and beverage industry representing 40% of the total sales, he said.

Car production has been growing by 31% on average since 2009, while Indonesia's overall per capita consumption of plastic goods remains low at 10kg annually compared with the rates of increase in Thailand at 56% and Malaysia at 45%, Pardede said.

"This leaves plenty of scope for future growth," he added.
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