JAKARTA, INDONESIA (25 September 2019) — Indonesia’s economy is expected to maintain a healthy growth rate in 2019 and 2020 on the back of continued strong domestic consumption, according to the Asian Development Outlook (ADO) 2019 Update, the Asian Development Bank’s (ADB) flagship economic publication.
ADB revises its economic outlook for Indonesia, with growth to slightly moderate at 5.1% this year, down from 5.2% in 2018, before edging back to 5.2% in 2020. The slightly slower pace of expansion this year reflects a downturn in exports and moderating domestic investment.
“Robust consumption should see Indonesia’s economic expansion continue at a healthy pace this year and next year,” said ADB Country Director for Indonesia Mr. Winfried Wicklein. “Economic fundamentals remain solid, with the fiscal position well-managed, prices stable, and reserves in a comfortable position. Stronger investment is needed to boost growth, with a focus on competitiveness and human capital development being key.”
Investment is expected to improve toward the end of the year, as progress continues with the construction of national strategic projects that are upgrading infrastructure networks. Recent cuts by Bank Indonesia to the policy rate are also likely to give a fillip to credit growth. In 2020, private investment should continue to improve as new reform initiatives are expected to be launched toward improving the business climate and accelerating the modernization of the economy.
Consumer spending should maintain robust growth this year and next year, underpinned by rising household incomes, job growth, and low inflation. Inflation is likely to remain stable at 3.2% this year and 3.3% in 2020, which should help sustain momentum in private spending. Core inflation is expected to remain anchored and food prices unchanged.
Despite weakening growth among trade partners that has affected Indonesia’s trade balance, the deficit in the current account should be contained at 2.7% of gross domestic product (GDP) this year. With investment and economic growth projected to pick up, the current account deficit is expected to widen to 2.9% of GDP in 2020.
By sector, services are expected to maintain robust growth, boosted by a growing youthful population that is expanding its use of online services. Within industry, construction will likely benefit from urban property development. The new administration’s commitment to adopt new technologies should increase manufacturing capabilities and lead to gains in competitiveness in the medium term.
External risks to Indonesia’s economic outlook include global trade tensions and weakening trade momentum, both of which must be closely monitored. Moderating investment is also a concern and it is important for Indonesia to stay the course with its reforms to diversify the economy and to open itself to opportunities associated with an emerging reshaping of global supply chains.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members—49 from the region.