The Indonesian central bank, Bank Indonesia (BI), predicted the country's investment growth in 2006 to decline to a range of 8.4 percent to 9.4 percent, from last year growth at 9.6-10 percent.

The declining investment growth was mainly due to sluggish business outlook with weak public purchasing power, BI said in its quarterly report issued on Saturday.

In addition to weak demand, businessmen have faced higher cost of capital as an impact of BI rate increase which began to be applied to loan interest rate.

Uncertainty in the business outlook has become one reason for businessmen to take wait and see attitude, the report said.

The declining purchasing power is predicted to slow down growth in household consumption from 3.4-3.9 percent in 2005 to 3-4 percent in 2006.

However, sluggish consumption growth could be avoided with the government fiscal stimulus which is expected to encourage government consumption to 13-14 percent.

Fiscal stimulus is expected to bring significant double impact to the economy and become a backbone for investment in 2006, it said.

In addition, the government commitment to continue improving the investment climate is a key factor to maintain continuity of investment activity.

Under such a condition, economic growth in 2006 is expected to range between 5 percent and 5.7 percent, higher than growth prediction for 2005 at 5.3-5.6 percent.

In terms of supply, some sectors are predicted to have sluggish growth in 2006 as a result of an impact of various challenges on the economy.

The processing industry is expected to have stagnant growth at 5.1-6.1 percent due to sluggish growth in public consumption.

The food and beverage industry, chemical industry, basic metal, iron and steel industry are expected to become locomotive for the growth in the sector.

The trade sector and hotel and restaurant sector are expected to have sluggish growth at 7.6-8.6 percent, while agriculture would have higher growth at 1.9-2.9 percent in 2006-2007 supported by the government's move to guarantee supply and minimize price increase of fertilizers for the 2005-2006 planting season.

Source: Xinhua