Jakarta – Stronger growth in private consumption and recovering overseas demand will lead to higher economic growth for Indonesia next year, the central bank says.

In its economic outlook report for 2009-2014 published Wednesday, Bank Indonesia forecast economic growth to be between 4.5 and 5.5 percent in 2010. The forecast is in line with the government's recent figure of about 5 percent.

The GDP of Southeast Asia's largest economy was valued at US$433 billion last year.

BI estimates private consumption, including household con-sumption, will grow by 4-5 percent next year, up from 3.2-4.2 percent this year.

Private spending accounted for an average of 64 percent of Indonesia's GDP between 1998 and 2008, up from 58 percent between 1988 and 1997. "The characteristics of the economy tend to be domestic-demand-driven growth," the report said.

However, BI warned household consumption, the main driver of private consumption, would be in a more fragile state as it was heavily financed by labor income instead of savings, loans or other sources.

Around 60 percent of Indonesian workers are employed in the manufacturing, agricultural and mining sectors, which could be hard hit by the crisis, according to BI.

"The possibility of household consumption slowing in a significant way due to the impact of the global crisis should be closely watched because there is already a wave of layoffs following a decline in the performance of the export-oriented sector."

BI forecast export growth this year to contract by between 5.1 and 4.1 percent, while possibly growing next year at between 6.7 and 7.7 percent.

BI, however, emphasized the need for the government to immediately diversify the country's export market and goods in order to be able to meet the forecast. "Lack of overseas market diversification has caused export performance to be hit hard (by the crisis)," BI said.

Japan, the United States, Singapore, South Korea and China account for more than 50 percent of Indonesia's export sales.

BI also said Indonesia's export commodities, mainly raw natural resource goods, had also weakened export performance due to fluctuations in commodity prices.

Lower global commodity prices will also contribute to the easing in the country's notorious inflation. BI noted the main contributors for inflation next year will be an abundant disposable income due to the government's tax stimulus for companies and workers.