7.0 Indonesia, like much of East Asia, has thus far maintained its growth

W O R L D B A N K 7 and while the 2008 revised proposed budget aims for a very firm increase in government spending this year, it is not clear that can be realized given pressures from energy subsidies section 6. Private consumption grew by 5.0 percent between 2006 and 2007 and by 5.6 percent during the course of 2007, its fastest pace this decade Figure 3. Non-food consumption led this growth. The December quarter appears to have maintained the pace of earlier in 2007, according to the seasonally adjusted quarterly growth rates and various partial indicators. For example, consumer credit accelerated through 2007 as interest rates fell; growth in motor vehicle sales has been very strong, although motorbike sales have been more mixed recently, and unemployment fell to 9.1 percent in 2007 from 10.3 percent in 2006. In contrast government consumption increased by only 2.0 percent from the end of 2006 and 3.9 percent in annual terms, and is likely to be even weaker in 2008 given the challenges of continuing to finance the mounting energy subsidies. Figure 2. Investment accelerates, drawing more on imported capital goods percentage change Figure 3. Strong private consumption year-on-year percentage change - 40 - 20 20 40 60 80 2003 2004 2005 2006 2007 I m por t ed capi t al goods Dom est i c Const r uct i on I nvest m ent quart erl y, SA Source. BPS and World Bank staff calculations 1 2 3 4 5 6 7 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Non- Private Consumption Food Source. BPS and World Bank staff calculations Robust export growth was eclipsed by an even stronger increase in imports, and net exports were negative in the latter half of 2007. Total exports increased by 8.0 percent in 2007 from 2006, and 7.3 percent in the year to the December quarter, led by manufactured exports especially automotive goods and chemicals, and by some agricultural products. The volume of mining and forestry product exports fell over the year, associated with supply problems in both industries. The 14.8 percent increase in imports over 2007 was broad based. The 24 percent increase in capital goods imports reflected the strength in investment, as did various intermediate goods, such as steel. Strong consumer demand led to large increases in imports of food items including rice and sugar, and a 69 percent increase in imports of passenger cars. The strength of Indonesia’s domestic economy, and particularly consumer demand, is also evident in the production account. Tradables industries continued to show weak growth in 2007, while many domestic-focused sectors recorded strong output growth – the non-tradable sector grew by 10 percent year-on-year. Over the year all production sectors recorded stronger growth in 2007 relative to 2006 Table 3.