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Real sector economic growth continues to weaken

Kompas - February 16, 2008

Jakarta – The government's economic growth target for 2007 of 6.3 percent has been reached. But growth in the manufacturing and agricultural sectors – which supports real sector growth – continues to weaken. As a result, job opportunities are not being created because the economy is being propped up by the capital intensive and technological sectors.

Speaking in Jakarta on Friday February 15, National Statistics Agency (BPS) deputy chairperson for balance of payments and statistical analysis, Slamet Sutomo announced that the economic growth rate for the 2007 fourth quarter was minus 2.15 percent. This being the cases, in cumulative terms the economy in 2007 grew by 6.32 percent compared with 2006.

The negative growth in the fourth quarter of 2007 was primarily because of a rapid decline in growth in the agricultural sector of minus 22.9 percent compared with the previous quarter. Performance in this sector depends entirely on seasonal cycles.

During the fourth quarter of 2007, negative growth of minus 0.2 percent also occurred during the in the manufacturing sector of while the mining sector declined by 0.1 percent. The latest data from BPS also indicates a further weakening of growth in manufacturing and mining sectors over the last year.

In the first quarter of 2007, the mining sector was able to grow by 6.16 percent, but since then this has continued to slow. As a consequence, cumulative economic growth in the mining sector by late 2007 was only 1.98 percent, compared with 2006.

Manufacturing industries

A slowdown also occurred in the manufacturing industries that are the backbone of the absorption of labour. In the first quarter of 2007, the manufacturing sector grew by 5.22 percent, but this has continued to weaken. In cumulative terms, in 2007 the manufacturing sector only grew by only 4.66 percent.

Growth in manufacturing is far below the government's target. In the 2005-2009 Medium-Term Development Plan (RPJM) 2005-2009, the government set an annual growth target of 8.56 percent for the industrial sector. The Department of Industry predicted that in 2007 the industrial sector would grow by 6.31 percent.

Economist M. Chatib Basri is of the view that growth in the manufacturing sector cannot be expected to improve as long as fundamental issues such as labour, infrastructure and availability of energy are not addressed.

The mining sector meanwhile weakened because of a decline in oil production. "The decline in oil production not only had an impact on blowing out the state budget, but it also weakened economic growth," said Basri. (DAY)

[Translated by James Balowski.]

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