Jakarta – The Indonesian economy slumped 17.4% in the third quarter of this year proving the sprawling country's downturn hasn't bottomed out yet. But analysts noted that gross domestic product and inflation data released Monday show the speed of Indonesia's economic slump has slowed markedly from earlier this year. "The broadly positive spin is that the real contractions are still occuring but are slowing," said David Fernandez, Association of Southeast Asian Nations economist at JP Morgan in Singapore. "Inflation is still incredibly high, but not as high as a couple of months ago."

At the same time, many market watchers continue to view government forecasts – which predict inflation hitting 80% this year and a 13.7% economic downturn – as erring far too much on the side of optimism. In all, the economy contracted by 13.6% in the first nine months of 1998, compared with the same time a year ago, the Indonesian central statistics bureau said.

Inflation, as measured by consumer prices, grew by 3.75% in September compared with a rise of 6.3% in August, led by continued increases in the price of basic foods. Annual inflation for September was up 82.4% compared with 77.7% the previous month. Inflation so far this year is up 75.47%. Statistics bureau Chairman Sugito said the economy would likely shrink by 13.7% over the full year "based on the year until September."

The Indonesian economy slumped 16.5% in the second quarter of the year, during which the country was rocked by a wave of rioting and political instability. Mr. Sugito said the picture for the fourth quarter wasn't any prettier. He said the economy would shrink in the last three months of the year by more than it did in the third quarter.

Mr. Sugito said the government would find it difficult to cap inflation at 80% this year, noting that inflation for the first nine months is already close to that level. Mr. Fernandez, at J.P. Morgan, concurs, predicting inflation for the full year will be closer to 100%. "They're not in super nightmare scenario now in month-to-month inflation but there's no way they can [cap it at 80%]," he said.

Mr. Fernandez also doubts the government's forecast for economic contraction this year, noting that this would require a marked pickup in the last quarter of the year, something the statistics bureau isn't expecting.

The fact that Indonesia's economy is plummeting is well known and Monday's figures give an idea of the extent of the country's woes. The International Monetary Fund – which is leading a bailout fund for the country – has predicted the economy will contract by 15% this year, after registering growth of 5.7% in 1997. The government – and IMF – have forecast inflation would be capped at 80% this year, as it takes steps to arrest the rise in food prices.

This has had some measure of success, evident in the slowdown in climbing consumer prices in September, compared with August when prices of basic foods – particularly rice – rose sharply. This, analysts say, should lead to a drop off in inflation – or even deflation – in October. "In my view this should be the last big increase in monthly inflation figures." said Alex Wreksoremboko, head of Indonesian research at Merrill Lynch in Jakarta. "Even by now if you look at retail prices, they have fallen compared with early September.

Next month, when we get October figures – if the rupiah stays where it is now – we will see mild deflation." The statistics bureau said prices of basic commodities rose 8.61% in September compared with 9.1% in August. Cigarette and tobacco prices rose 11.6% and housing by 1.6%, health by 3.3%, education and recreation 1.24% and transportation and communication by 2.1%. Rice prices rose by 1.5% compared with 1.1% in August. Mr. Sugito noted that prices of goods and services in September were, in general, relatively high but there were signs of easing toward the end of the month.

While the country's contraction figures – by far the highest in Asia's troubled economies – are alarming, Mr. Fernandez notes that on a seasonally-adjusted annual basis, the actual downturn from quarter to quarter is slowing. Compared with the second quarter, for instance, the economy shrunk by 10%, markedly different from the 30% slump between the first and second quarters and between the first quarter and the fourth quarter of last year.

Most analysts say the Indonesian economy will shrink by at least 15% this year, with some saying the downturn will be closer to 20%. Indonesia has been harder hit than most by Asia's financial meltdown. A dramatic plunge in the value of the rupiah has resulted in skyrocketing price hikes, mass unemployment and corporate insolvency. Food shortages in some areas has triggered sporadic looting and rioting.