JAKARTA, INDONESIA (3 APRIL 2019) — Indonesia’s economy will continue to expand in 2019 and 2020 because of robust domestic demand, says a new report by the Asian Development Bank (ADB) released today.
The Asian Development Outlook (ADO) 2019, ADB’s flagship annual economic publication, forecasts Indonesia’s economy to grow at 5.2% this year and 5.3% in 2020.
“On the back of solid macroeconomic management and strong domestic demand, Indonesia’s growth momentum is expected to continue at a healthy pace,” said ADB Country Director for Indonesia Mr. Winfried Wicklein. “To further boost sustainable and inclusive growth, continued focus on strengthening competitiveness, developing human capital, and enhancing resilience will be required.”
The ADO says strong domestic investment and robust domestic consumption more than offset weaker export growth in 2018, enabling the economy to grow at 5.2%. Strong investment was driven largely by public infrastructure projects in transportation and energy. Industrial growth accelerated, as mining output rose, and exports such as apparel and footwear also strengthened.
Growth this year and next is likely to be broad based, the ADO says. With a number of key public infrastructure projects completed or close to completion, foundations are laid for private investment to pick up. Recent improvements in the investment climate such as streamlining tax administration and simplifying business licensing should further support investor sentiment.
Meanwhile, private consumption should remain robust in the near term thanks to rising employment in the formal sector and scaling up of the government’s social assistance programs. Inflation is likely to remain low and stable at 3.2% this year and 3.3% in 2020, which will help sustain the growth momentum in private spending.
Strong domestic demand pushed up merchandise imports last year, while growth in merchandise exports slowed. Improvements in net service exports from rising tourism revenues and remittances partly offset the deterioration in the trade balance, putting the current account deficit at 3.0% of gross domestic product (GDP) last year. The deficit in the current account is expected to decline to 2.7% of GDP this year and next, as both merchandise import and export growth moderate while gains from tourism revenues look set to continue.
Risks to Indonesia’s economic outlook are largely external and include an escalation of global trade tension and volatility in international financial market, as well as a possible drought induced by El Niño.
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.