Economy of Indonesia; Assessing the State of the Indonesian Economy as We Entered a New Year
In December 2022 the Asian Development Bank (ADB) cut its forecast for economic growth of Indonesia in full 2023 from 5.0 percent year-on-year (y/y) to 4.8 percent (y/y). In its Asian Development Outlook Supplement (the December 2022 edition), the institution noted that weak economic growth in developed countries will impact negatively on Indonesia’s export performance.
Moreover, fiscal and monetary tightening (in response to the government’s budget deficit that needs to be back below 3 percent of GDP, and Bank Indonesia’s efforts to keep an attractive margin with the US Federal Reserve’s Fed Funds Rate) are bound to undermine economic activity in Indonesia in 2023. On the bright side, though, the ADB expects private consumption to rise in Indonesia in 2023.
Meanwhile, the ADB left its forecast for Indonesia’s economic expansion in full 2022 unchanged at 5.4 percent (y/y). Economic growth comes on the back of recovering private consumption, growing investment, and the strong export performance (with demand being especially strong for the country’s primary commodities such as palm oil and coal). Also services exports have started to recover in 2022 as foreign visitor arrivals (tourists) are growing strongly (albeit coming from a very low base).
Also the World Bank came with a new report on the Indonesian economy. In its latest Indonesia Economic Prospects, this institution projects strong growth for Indonesia at 5.2 percent (y/y) in 2022 thanks to the country’s recovery from the COVID-19 crisis and lucrative commodity prices. However, regarding the 2023-2025 period, it only sees growth at an average of 4.9 percent (y/y) for Indonesia.
Moreover, the World Bank emphasizes that Indonesia’s economic growth outlook is subject to “significant downside risks” because weaker global demand, tighter global financing conditions, capital outflows, and currency pressures could trigger more rapid monetary policy tightening than expected. In other words, the World Bank’s outlook for the global economy deteriorated quite significantly. Previously, it had its outlook for Indonesia’s economic growth in 2023 set at 5.1 percent (y/y).
For now, Indonesia Investments keeps its forecast for Indonesia’s economic growth in 2022 and 2023, both, at the range of 5.0–5.5 percent (y/y). While it seems certain that Indonesia’s 2022 economic growth will fall in that target range, the question is whether our range is set to high for 2023. However, we would first like to see the Q4-2022 GDP data before deciding to revise our 2023 outlook.
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Read the full article in our December 2022 report (an electronic report). This report can be ordered by sending an email to [email protected] or a message to +62.882.9875.1125 (including WhatsApp).
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