Indonesia

As its domestic energy demand soars, Indonesia continues to diversify its supply, taking steps to reduce its dependence on oil. The archipelagic nation is increasingly looking to renewable sources, such as geothermal, to help meet its energy needs.

Rising profits and plans for expansion by major Indonesian retailers as international players enter the burgeoning mall segment highlight confidence in the sector’s prospects. However, creeping inflationary pressures and growing regulatory requirements threaten to dent the growth expectations of the industry and the overall economy.

Inflation in Indonesia picked up in the early months of 2013, as rising prices have constrained the Bank of Indonesia’s (BI’s) ability to loosen monetary policy to encourage GDP growth, with possible further rate rises to come. However, the robust economy is unlikely to suffer much as a result, particularly if other pro-growth measures are taken.

Reports that international insurers are seeing healthy growth in Indonesia suggest high expectations over how the market’s potential will be met this year and beyond. However, concerns over new regulations and the country’s susceptibility to major natural disasters underline a sector that is not without risk.

Basking in an environment of rising demand for credit in a growing economy, Indonesia’s banks have become some of the most profitable in the world. In recent weeks, two of the big three global ratings agencies have given the banking system a strong vote of confidence. However, there is also a downside. The sector could be hit by rising non-performing loans (NPLs) and changes in government policy that could affect the rupiah.