During the first six months of 2022, the economy proved to be quite resilient to the consequences of the conflict in Ukraine and China’s zero-Covid policy. In particular, it benefited from the higher prices of exported commodities (mainly coal and palm oil). Its public finances and external accounts consolidated despite rising subsidies and net capital outflows. However, the situation could deteriorate in the fourth quarter and the medium-term outlook is less favourable [...]
The Covid-19 pandemic weakened Indonesia’s economy. Two years after the crisis, real GDP has returned to 2019 levels, but the labour market is still weak, the poverty rate is higher than before the crisis and investment remains subdued. According to the World Bank, the pandemic’s lasting impact on education and the labour market will cost the country 0.1 points of its long-term growth potential [...]
At first glance, Indonesia consolidated its external accounts in 2021. Foreign exchange reserves amounted to USD 131 bn, the equivalent of 8.3 months of imports of goods and services, while the external debt came to only 35% of GDP, which is less than the pre-Covid level. Moreover, the current account showed a slight surplus (0.3% of GDP) for the first time since 2011. The strong performance of the current account reflects the steep increase in the trade surplus, which swelled to 4 [...]
Having contracted by 2.1% in 2020, the Indonesian economy is likely to see only a modest recovery in 2021. Domestic demand is struggling to recover. Consumer sentiment remains weak and any resurgence in the pandemic could undermine the recovery, at a time when a very low percentage of the population has been vaccinated. Moreover, despite the highly expansionary monetary policy, bank lending has continued on its downward trend [...]
For the first time since the 1998 crisis, Indonesia is expected to enter recession in 2020. In Q2 2020, the economy contracted by more than 5%, and the recovery should be slow. Domestic demand is struggling to pick up, and Jakarta has just been put under a partial lockdown again. Fiscal support has been slow in coming: planned fiscal spending still hasn’t materialised in the first seven months of the year [...]
The COVID-19 crisis will have a huge impact on an economy that was already weakened slightly by the slowdown in global trade in 2019. Yet Indonesia’s macroeconomic fundamentals are strong: its public finances are solid, the banking sector is robust and both companies and households have very little debt. The country has sufficient foreign reserves to cover its short-term financing needs [...]
Economic growth slowed in Q1 2019, but for the moment the economy seems to be fairly resilient to the decline in world trade. In the short term, dynamic household consumption, stimulated by measures to boost purchasing power, will continue to offset the slowdown in exports. In the longer term, real GDP growth is hardly expected to exceed 5-5.5% [...]
Over the last six months the rupiah has gained more than 7% against the dollar (14,085 rupiah per dollar on 16 April), taking it to just 2% higher than it was a year ago. Over the same period, foreign exchange reserves have increased (by USD 9 bn) taking them back close to their levels of a year ago. They remain sufficient to cover the country’s short-term external financing needs (1.3 times) despite the increase of the latter due to the sharp rise in the current account deficit [...]
Foreign exchange reserves decreased by USD 4 billion due to pressures on the Indonesian rupiah (IDR) recorded in February and central bank’s interventions in the forex market to stabilize the currency. At the same time, government bond yields rose (+70bp). The slight mistrust of foreign investors since February is not really alarming. Indonesia’s macroeconomic fundamentals are solid and its external vulnerability has decreased significantly since 2013 [...]
Indonesia is the fifth largest economy in Asia in nominal GDP terms and the world’s third most populous nation behind China and India. Economic growth has been robust over the period 2015-2019 (5.0% per year on average) but insufficient to increase GDP per capita substantially, that remains much lower than that of Thailand or Malaysia. Although Indonesia has major demographic advantages compared with other Southeast Asian countries, its growth prospects are still constrained. To benefit fully from its demographic advantage, the government must develop its manufacturing industry, requiring simultaneous efforts on labour, capital and regulation.
In 2020, economic growth contracted by 2.1% due to the COVID-19 pandemic shock. However, in the medium term, economic prospects remain favourable as the Widodo’s government managed to adopt major economic reforms to stimulate medium and long-term growth and increase its attractiveness for foreign direct investment (FDI). Macroeconomic fundamentals, albeit deteriorating with the COVID-19 crisis, remain fairly good (low public debt, low fiscal deficit and low external debt to GDP ratios) but the country is still highly reliant on volatile portfolio inflows to finances its current account deficit as FDI remains structurally low. Indonesia’s competitiveness and attractiveness remain lower than in other ASEAN countries due to structural constraints. However, risks are mitigated by large foreign exchange reserves. Moreover, in the medium term, the Omnibus Law should improve the Indonesia’s position in the supply chains process, boost its exports and FDI inflows and make the country less dependent on portfolio inflows.
