Jakarta – Indonesia's economic growth is expected to be shaved to as low as 3.1 per cent this year after the deadly terrorist bombing in Bali, analysts say, citing rising risk premium and falling consumer confidence.

The government had forecast a 4.0 per cent growth figure for 2002 before the blast which had shaken investor confidence. The economy grew 3.3 per cent last year.

The analysts told AFX-Asia, an AFP subsidiary, that growth should drop to 3.1-3.3 per cent from their average projection of 3.4-3.8 per cent before the blast.

They said the government should maintain the current 'favourable' monetary policy to minimise the impact on the economy, which is likely to suffer from a drop in tourist arrivals and foreign investment.

According to the analysts, the impact, however, may not be as bad as some had feared due to Indonesia's reliance on domestic, rather than external, demand.

State-run Bahana Securities economist Budi Hikmat said the terrorist attack in Bali occurred "at a time right before the normal tourist peak season of the year as well as ahead of the year-end festive season in Indonesia".

"So, basically this event will have a negative impact but how bad it is, remains to be seen." He has revised downwards his 2002 gross domestic product (GDP) growth forecast to 3.1 per cent from 3.8 per cent on the assumption that private consumption in the fourth quarter could be dampened.

Domestic consumption accounts for some 75 per cent of total GDP but had started slowing even before the Bali attack due to weaker consumer purchasing power resulting from government cuts to fuel and electricity subsidies.

The government has forecast fourth quarter growth of 5.76 per cent, up from a forecast 3.86 per cent in the third quarter on seasonal factors.