Jakarta – Indonesia's economic growth is set to slow to 4.5-5.5 percent in 2009 because of weak commodity prices, while easing inflation should allow to lift domestic spending with more rate cuts, the finance minister said on Sunday.

Indonesia's economy grew 6.3 percent in 2007, the fastest pace in a decade, on the back of a commodity boom. The government expects growth to be about 6 percent this year, the minimum seen necessary to make a dent in unemployment, currently around 10 percent.

The finance minister said that exports and investment growth would slow to single digits next year and interest rates should also fall further.

"Weakening growth will be accompanied with weakening inflation, which is probably good for us," Indrawati told members of the Indonesian Chamber of Commerce, adding that 2009 inflation should slow to 6-7 percent.

In a bid to cushion the impact of global economic crisis, Indonesia's central bank cut its benchmark interest rate by a quarter of a percentage point to 9.25 percent on Dec. 4 and has reduced fuel prices twice to ease inflationary pressures.

Annual inflation slightly dipped in November to 11.7 percent percent from 11.8 percent in October and Indrawati said prices may drop month-on-month in December, bringing the annual rate to below 11 percent.

The challenge next year was to raise domestic spending power, the finance minister said, as exports of key Indonesian commodities such as palm oil, rubber and nickel slow.

She said domestic consumption should grow 5 percent next year helped by government spending programmes and with parliamentary and presidential elections in 2009.

A Reuters poll on Dec. 11 had forecast the economy would slow next year to a seven-year low of 4.8 percent before picking up to 5.6 percent in 2010.

As many as 700,000 jobs are under threat in Indonesia's manufacturing and commodities sectors next year because of the fall-out of a global financial crisis and credit crunch, according to the International Labour Organisation. (Reporting by Karima Anjani; Writing by Ed Davies; Editing by Tomasz Janowski)