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Jakarta should keep eye on China's pace: World Bank

JAKARTA -- The World Bank says Indonesia's economy will remain resilient against threats posed by stalling economic recovery in the U.S. and Europe, but warned policymakers in the country to monitor economic developments in China, the potential economic slowdown of which could have more “negative spill over” effects for the archipelago.

A 1-percent economic slowdown in China may decelerate Indonesia's economic expansion by up to a half a percent, the Washington-based institution noted in its October report released yesterday, titled “Indonesia Economic Quarterly: Maintaining Resilience.”

The report forecasts that Indonesia's economy will expand to 6.1 percent this year and 6.3 percent next year, but warned the country over “downside external risks,” especially those stemming from China's economy, which could push down Indonesia's growth to just below 5 percent in 2013.

“Why China? Because it has very strong impact on Indonesia's economy, both directly and indirectly,” said Ndiame Diop, World Bank economic advisor for Indonesia.

Diop argued that the direct impact for Indonesia's economy would be felt through the trade channels, as China currently absorbs about 11 percent of Indonesia's total exports, mostly commodities.

The indirect impact from China's slowdown, meanwhile, would also be felt through investment.

“If China slows down, it is going to be felt in Japan and Korea. They happen to be important sources of FDI (Foreign Direct Investment) to Indonesia,” he explained.

China is Indonesia's biggest trading partner, with total trade between the two countries amounting to US$60.5 billion last year, according to data from the Chinese Embassy in Indonesia.

China, the world's second-largest economy, is currently feeling the pinch of weakening global demand, recording its slowest economic growth in three years of 7.6 percent in the second quarter of this year.

The World Bank this month chopped its economic growth forecast for China to 7.7 percent from its earlier prediction of 8.2 percent as the world's second-largest economy heads for a “soft landing” due to its heavy reliance on exports.

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