We have been fine-tuning our growth forecasts for Indonesia in 2012 and 2013, but only marginally so. Since our last quarterly report we reduced the 2012 forecast a little (mainly on fears of inflation forcing a monetary tightening), but then in August pushed it up again as data for Q212 showed that the domestic economy is growing rather faster than expected. We still believe that the slowdown in the global economy is the main negative and will hold Indonesian growth below its 2011 level.

On the other hand, everything shows that the country's domestic economy is in fairly strong health, with consumer spending looking solid and investment also performing well as the government and the private sector begin to tackle the often postponed need to expand and update infrastructure. The net result is that BMI now expects the Indonesian economy to grow by 6.0% in 2012 (up from 5.4% in our last quarterly report); our outlook is for GDP growth of 6.3% in 2013 (no change). In the five years to 2016 we expect growth to average 6.3% per annum, confirming the country as a regional outperformer.

The growth outlook for Indonesia's ports, constrained by short-term capacity limits, has not changed significantly. We continue to think that the key to sustainable growth is investment in port infrastructure, including road and rail links in the hinterland areas. We are encouraged that after many delays, Indonesia Port Corporation II (IPC) announced earlier this year that it will invest US$2.47bn to develop an extension Tanjung Priok port in North Jakarta. Also a positive this quarter was the company's announcement that it will build a big iron ore and container transhipment facility on the island of Batam (see below).

Headline Industry Data

- 2012 Tanjung Priok total tonnage forecast to grow 5.9% to 49.879mn tonnes, with average growth of 5.7% expected over our forecast period to 2016.

- 2012 Palembang total tonnage forecast to grow 3.6% to 10.595mn tonnes, with average growth of 4.1% over our forecast period.

- 2012 Tanjung Priok container throughput forecast to grow 3.9% to 6.024mn TEUs, with average growth of 9.3% over our forecast period.

- 2012 Palembang container throughput forecast to grow 5.4% to 91,545TEUs, with average growth of 6.2% over our forecast period.

Key Industry Trends

Pelindo II Announces Big Batam Transhipment Project

Pelindo II, the state-owned port operator, has signed a memorandum of understanding with China Merchant Holdings to build a new container and iron-ore transhipment port at Tanjung Sau on the island of Batam. The US$2bn project could be completed in 2016 and will have an annual handling capacity of 4mn twenty-foot equivalent units (TEUs) and 100mn tonnes of iron-ore. This project is a further example of Indonesia's big push to improve its ports, which currently rank 103rd in the world according to the World Economic Forum's Global Competitiveness Report, with a score of 3.6 out of 7.0.

ICTSI Expands At Tanjung Priok

Philippines-based port operator ICTSI is becoming an increasingly important player at the Port of Tanjung Priok. The company already controls the Adipursa container terminal there, and through its Karwell subsidiary has now acquired a 100% stake in Indonesian operator PBM Olah Rasa Andal, which operates piers 300 to 303 at the port. ICTSI also manages and operates the Makassar Container and Muara Container terminals in Indonesia and Brunei respectively.

Q212 Profits Up At IPC

The Indonesian Port Corporation (IPC) reported a 42% increase in revenues to US$138.3mn during the second quarter of this year. Net profit also rose by 45.9% to US$54.3mn during the same period. Traffic increased at all 12 of the corporation's ports. The IPC invested a total of US$38.9mn in port development during the quarter, representing approximately 8.32% of the company's overall budget for 2012.

Indonesia is forecast to see strong growth in 2012, despite the recessionary trends in the world economy.

Key Risks To Outlook

The main downside risk remains a further slowdown in global growth, with Indonesia particularly liable to the effects of a 'hard landing' in China. If the global economy fares worse than expected, the Indonesian ports and shipping sector will feel the pinch through reduced trade levels. However, it has to be stressed that this is a smaller risk than in many other countries; based on a strong domestic economy, Indonesia was able to remain on a growth path throughout the 2009 recession. If anything, we see the economy remaining resilient in 2012.

A second downside risk to our outlook is the possibility that some of the current projects to expand port capacity might suffer a high-profile setback, such as a legal dispute or allegations of corruption. Any such development might damage the gradual improvement in investor perceptions of Indonesia that has taken place over the last few years. More specifically, it would lead to delays in the much-needed drive for modernisation.

The price of this market report covers 4 quarterly reports on this sector. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.

Click for Report details:Indonesia Shipping Report Q4 2012