However, such views increasingly get the story backwards. With the global economic environment set to become more difficult, economic policy will need to more than make up the difference. [3] Pricewaterhouse Coopers, for instance, projects Indonesia will be ninth largest by 2030. Source: Author’s calculations based on Indonesian national labour force survey and national accounts data. Despite some good achievements, fiscal reform has been uneven and all three elements of the existing strategy are reaching their limits. The government spending can push household consumption too,” Mr Fadhil added. If left unaddressed, however, the ‘new normal’ of slower growth will not last and growth will inevitably slow further. JAKARTA, INDONESIA — Indonesia’s economic growth contracted by 5.32 per cent in the second quarter of 2020, according to Indonesia’s Central Body of Statistics (BPS). The country has been growing steady in the last few years mostly due to high domestic consumption and growth in exports of manufactured products and commodities. The BPS data showed that the government spending on year-on-year in the second quarter contracted 6.9 per cent, while in the same period last year during the election, the absorption of government spending hit 8.23 per cent. [45] Particular issues with the new formula for setting minimum wages include that it is not tied to worker productivity and does not take into account varying sector and local market conditions. Infrastructure investment has picked up and is now keeping pace with demand. As noted earlier, ostensibly there has been solid progress, as demonstrated by the jump in Indonesia’s Ease of Doing Business ranking. Deflation in Indonesia in July reached 0.10 per cent — the inflation rate from January to July (year-to-date) stood at 0.98 per cent and 1.54 per cent on year-on-year. The problem, rather, is that elevated investment is now translating into less economic growth. A steady economic expansion in Indonesia is boosting living standards, curbing poverty and offering millions of people greater access to public services. McKinsey: China and Europe drive demand in the EV sector. It is also needed to contain external financing pressures and, counter-intuitively, create more space for the private sector to respond to new growth opportunities with increased investment (without generating instability risks). Doing better, however, will require some recalibrating of the reform agenda. In 2014, Jokowi’s first year in power, a continued tendency towards further protectionism can be seen. All views and mistakes remain my own. Agriculture contributes to one-third of Indonesia’s total GDP and employs around 41% of the total work force. [37] The government itself recognises this problem with recent further efforts to improve coordination: “Indonesia Prepares ‘Ease of Doing Business’ Task Forces”, The Jakarta Post, 3 November 2017, http://www.thejakartapost.com/news/2017/11/03/indonesia-prepares-ease-of-doing-business-task-forces.html. Ihre Privatsphäre ist uns wichtig. The editorial office for Asia Investments. This is illustrated by the incremental capital-output ratio (ICOR), which measures how much investment is needed to generate a given amount of economic growth. However, the trend deterioration in investment efficiency predates the current economic slowdown and has been persistent, meaning cyclical factors cannot be the primary explanation. Such views, however, get the story backwards. Sources: Australia Indonesia Partnership for Economic Governance (a government-to-government technical cooperation facility) and the World Bank (for details, see “Box 4: Methodological Note on Estimating Infrastructure Capital Stock in Indonesia”, in World Bank, Indonesia Economic Quarterly: Continuing Adjustment, March 2013, https://openknowledge.worldbank.org/handle/10986/16614). Similar institutional problems plague most emerging economies. [48] Tobacco excise taxes have been reformed, including by raising excise tariffs (although there remains scope to raise this further). It is ranked as the 16th highest GDP in the world, with a 5.1% growth rate last year. The IMF expects Indonesia’s unemployment rate to remain at 5% for the next half-decade. The USA, as one of the world’s economic powerhouses, announced that its growth in the second quarter contracted 32.9 per cent. [31] Aided by lower world oil prices, the total energy subsidy bill has shrunk from a fifth of the budget in 2014 to one-twentieth today. In terms of purchasing power parity, Indonesia’s GDP is at $3.50 trillion. Figure 10: Protectionism elevated despite reform packages. More than half of the population live on the island of Java. As Figure 5 shows, economic growth in Indonesia has been more capital-intensive than elsewhere in the region. , according to Indonesia’s Central Body of Statistics, Indonesia’s economic growth contracted by 5.32 per cent, Deflation in Indonesia in July reached 0.10 per cent. Figure 6: Low-quality structural transformation. Indonesia’s per capita GDP has almost quintupled in less than 30 years, from $770 in 1990 to $3,789 in 2018. Meaningfully closing the infrastructure deficit will therefore require a further substantial increase in investment. The IMF predicts that the Indonesian economy will slowly hike over the next five years, to reach $1.446 billion of GDP by 2023. During the COVID-19 pandemic, Indonesia’s growth only stood at 2.97 per cent in the first quarter of this year. Growth has, however, remained stubbornly low at about 5 per cent since 2014, down from more than 6 per cent previously (Figure 1). [38] Similarly, there is a disconnect between central government progress and patchy improvements at the local level where many licences are issued. Despite Indonesia’s membership in the G20 and pockets of rising sophistication such as in e-commerce, in most other ways its standing in global league tables is closer to that of Malaysia or Thailand than commensurate with Indonesia’s much larger economic size. This page provides - Indonesia GDP Growth Rate - actual values, historical data, forecast, chart, statistics, economic calendar and news. During the pandemic, I waited from early morning until 6.00 pm, and yet there will still be no passengers at all,” a taxi driver in Depok in West Java told TOC last week. Figure 10 shows the number of protectionist and liberalising policy measures introduced and still in force since 2009 affecting Indonesia’s trade in goods. [19] Foreign direct investment (FDI) accounts for a small share of total investment, averaging 2 per cent of GDP over the past decade and lower than most Asian peers, including Vietnam with 6.6 per cent of GDP, Malaysia with 3.5 per cent, and Thailand with 2.5 per cent. [2] On a market exchange rate basis, Indonesia ranks 16th in the world but will likely enter the top ten by 2030. Indonesia is widely seen as a future economic giant. In the longer term, continuing to build its policy credibility and developing its domestic financial markets will make the trade-off less constraining. Interestingly, the pandemic has also pushed up the prices of luxury bikes, as many people are buying bicycles to maintain their fitness levels. [22] Only Vietnam exhibited a higher proportion at 100 per cent. [48] Low compliance and outright evasion are clearly an issue, yet progress is likely to be slow. At the same time, however, more restrictive FDI rules were introduced in other sectors, particularly in public works. This website uses Google Analytics to collect anonymous information such as the number of visitors to the site, and the most popular pages. [6] The lead-up to the 2013 ‘taper tantrum’ was a brief exception, with the current account deficit reaching above the 3 per cent of GDP warning level before market volatility and capital outflows eventually forced a correction. Modern sectors include: mining and quarrying; industry; electricity, water and gas; construction; transportation, warehousing and communication; and finance, real estate, rental business, and company services.