"Indonesia Freight Transport Report Q1 2014" is now available at Fast Market Research

2014 Growth Forecast Reduced As Headwinds Strengthen After strong growth, the Indonesian economy has entered a difficult patch. A flight away from the rupiah and toward US dollar assets has combined with a widening current account deficit (4.4% of GDP in the second quarter) and continuing concerns over inflation (running at around 8.6% in the third quarter) to cause a degree of uncertainty. In this context Bank Indonesia has had to adapt a tightening stance on monetary policy, pushing up the benchmark interest rate in various steps since mid-2013. In August, the government announced a stimulus package offering tax cuts for labour intensive and commodity export sectors. Adding to the overall picture Indonesia is entering an electoral period, with legislative polls due in April 2014, followed by presidential elections in July of the same year.

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The economic policies of the front-running candidates are not yet entirely clear. Taking all this into account we have reduced our 2014 GDP growth forecast to +5.3% (down from +6.0% in our last quarterly report). This reflects what we see as a slowdown in investment and private consumption during the year. To be sure, our long-term outlook remains sanguine, with real GDP growth projected to average 6.2% per annum over the coming decade. Much of this, however, will be driven by strong growth in fixed capital. Should improvements in the investment climate stall or reverse - after all, the country is still ranked at a lowly 120th in the World Bank's Doing Business 2014 report - Indonesia could fail to realise its strong growth potential.

Our freight transport forecast for 2014 shows a significantly slower pace of growth, as the economy slows. This slowdown will be partially offset by something of a recovery in foreign trade that we expect during the course of the year, helped by the government's recent export stimulus package. On the medium to longer term we continue to think that the key to sustainable growth is investment in port infrastructure, including road and rail links in the hinterland areas. We are encouraged to see some evidence of progress on this front. Capacity problems remain an issue, but new investment projects in ports, airports, road, and rail are being launched.

Industry Data

* Air freight volumes are forecast to expand by 7.0% in 2014, with average annual growth of 7.1% during our forecast period to 2018.
* Rail freight volumes are estimated to rise by 8.3% in 2013, with average growth of 7.8% during our forecast period.
* 2014 Tanjung Priok total tonnage forecast to grow 4.0% to 55.192mn tonnes, with average growth of 4.9% expected over our forecast period to 2018.
* 2014 Palembang total tonnage forecast to grow 2.6% to 12.73mn tonnes, with average growth of 3.7% over our forecast period.
* Indonesian foreign trade (exports + imports) expected to grow by 5.6% in real terms in 2014, up from 2.3% in 2013.

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