Key reasons for her assumption are:

(1) An increase in activity in society after the government scrapped the social and business restrictions (locally known as PPKM) at the end of December 2022;

(2) Rising business activities in the context of the Ramadan and Idul Fitri period that will start in the third week of March 2023; and

(3) The lower base in Q1-2022 as this was in an earlier stage of recovery from the COVID-19 crisis. Moreover, in Q1-2022 there was concern about the Omicron wave.

Meanwhile, regarding economic growth of Indonesia in full 2023, Indrawati put her estimate at around 5 percent (y/y), slightly below the target that was set in the 2023 State Budget (namely 5.3 percent y/y).

Meanwhile, Bank Indonesia Governor Perry Warjiyo stated that he is also positive about the prospects of the Indonesian economy in 2023. Strong economic growth is one of the factors that allows the rupiah exchange rate to strengthen. Warjiyo put his forecast for Indonesia’s 2023 economic growth at 4.8 percent (y/y), emphasizing that this would be a stronger growth rate than China’s expected 4.5 percent (y/y) in 2023.

Another positive matter that was mentioned by Warjiyo is that Indonesian inflation (both core and headline inflation) remains relatively low and is expected to ease to below 4.0 percent (y/y) somewhere in the first half of 2023. Regarding full-2023 the central bank of Indonesia keeps its inflation target at the range of 2.5–4.5 percent (y/y), which is relatively low compared to inflation rates in most countries abroad.

Interestingly enough, Warjiyo also expects Indonesia’s current account balance to show a surplus in 2023. This balance recorded a USD $4.4 billion surplus (equivalent to 1.3 percent of gross domestic product, or GDP) in Q3-2022, thus even surpassing the USD $4.0 billion surplus (1.2 percent of GDP) set in the previous quarter.

However, many analysts (including us) are concerned that the current account will fall back into deficit in 2023 if commodity prices (specifically coal and crude palm oil) show weakness. Indeed, since the end of 2022 coal prices have fallen, while palm oil lost considerable momentum ever since mid-2022.


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