Indonesia, Southeast Asia’s biggest economy, achieved another year of 6%-plus growth in 2012, despite falling exports. Sluggish external demand combined with stronger domestic demand to shift the current account into deficit. Inflation fell to a 12-year low. Growth in gross domestic product (GDP) is forecast to quicken in the next 2 years. Near-term challenges are to manage risks associated with the current account deficit and keep inflation moderate.

Economic performance

GDP growth at 6.2% in 2012 was based on robust private consumption and a better performance in fixed-capital investment. Net exports fell, acting as a drag on GDP growth. Private consumption picked up to increase by 5.3%, the strongest pace in 4 years, and it contributed almost half of total GDP growth on the expenditure side. Consumption got a lift from increases in employment and wages as well as lower inflation. Sales of automobiles rose by nearly 25%, even though Bank Indonesia, the central bank, raised minimum down payments on cars and motorcycles.

Source: ADB estimates.

Economic prospects

Economic growth is forecast to pick up to 6.4% this year and 6.6% in 2014, underpinned by robust private consumption, the improving investment performance, and a gradual pickup in world trade. Growth of 6.6%, projected for 2014, would be the highest in 15 years.

Private consumption is expected to quicken in 2013, fueled by rising employment, a 30% increase in average minimum wages, a 7% rise in public service wages, and a tax break from January 2013, when the Government of Indonesia raised the income threshold at which income tax is payable. With parliamentary elections scheduled for April 2014 and a presidential election in July 2014, election-related spending is likely to contribute to consumption from the second half of 2013. A consumer survey conducted by Bank Indonesia in February 2013 showed an upturn in consumer confidence from a dip late last year.

Source: ADB. 2013. Asian Development Outlook 2013. Manila.

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