Indonesia's Economic Outlook and Risks in 2024
This article has been translated and summarized by CORIM Indonesia as part of our highlights of services. We has not completely checked the accuracy and admits no responsibility for the content.
By thejakartapost.com
Insight | January 08, 2024
Indonesia is expected to experience robust growth throughout the outlook period, with a projected GDP of 5% in 2023 and an average of 4.9% in 2024-2026. Private consumption will be the primary driver of growth, supported by election-cycle spending. Public consumption growth will account for a planned civil servant salary raise in 2024 and will continue to be supported in subsequent years as the new administration's programs get underway. Investment is expected to pick up pace over the outlook period, with exports and imports growing modestly.
Inflation is projected to decline further and remain within the revised target band of Bank Indonesia (BI). Headline inflation is projected to average 3.7% in 2023 and ease further to 3.2% in 2024, well within BI’s inflation target band. Falling inflation reflects the broader softening in commodity prices and normalizing domestic demand, despite some continued upside pressure on food prices due to El Niño effects. The output gap is estimated to close in 2024, and inflation is projected to average 3.0 percent during 2025-2026.
The external position is expected to become more challenging due to slowing trade and global financing pressures. Services exports will benefit from a continued recovery in tourism, while the current account is expected to record a small deficit in 2023 and gradually expand to minus 1.4% of GDP by 2026 as lower commodity prices and weaker global growth hamper exports. Foreign direct investment will remain the largest source of external financing as competitiveness reforms yield results and recent industrial down streaming efforts attract new projects.
BI's monetary stance will continue to be geared toward guarding against rapid or excessive capital outflows, with foreign currency reserves projected to remain adequate and above six months of imports. The fiscal stance is expected to remain conservative, with additional spending financed by revenue gains. Total revenues-to-GDP will slowly pick up as the effects of tax reforms materialize, despite remaining below pre-pandemic levels.
Gross fiscal financing needs will decline at an average 4.5% of GDP yearly, but interest payments are forecast to rise on average by 6.0% yearly between 2024 and 2026, accounting for 13.4% of total expenditures.
With resilient macroeconomic underpinnings and the end of the post-COVID recovery cycle, the policy focus turns again to the growth agenda. Indonesia has a credible policy track record of navigating downside risks and maintaining macroeconomic stability. In the future, the challenge is to build on these strong macroeconomic fundamentals to deliver faster, greener, and more inclusive economic growth.