Strong Fundamentals Keep Indonesia’s Growth on Track — ADB | Asian Development Bank

Strong Fundamentals Keep Indonesia’s Growth on Track — ADB

News from Country Offices | 26 September 2018

JAKARTA, INDONESIA (26 September 2018) — Economic growth in Indonesia, Southeast Asia’s largest economy, is expected to continue to be robust in 2018 and 2019 amid global headwinds, according to an update of the Asian Development Bank’s (ADB) flagship annual economic publication, Asian Development Outlook (ADO) 2018.

“Despite a challenging global environment, Indonesia’s economy is poised to grow at a healthy pace this year and next,” said ADB Country Director for Indonesia Mr. Winfried Wicklein. “Economic fundamentals remain solid, with good prospects for growth and inflation under control. The fiscal position remains well managed and measures have been put in place to preserve stability.”

While export growth may moderate in the near term, domestic demand should hold up, even as monetary policy is used to mitigate external pressure and promote stability, according to the report. Gross domestic product (GDP) growth is forecast to be 5.2% this year, up from 5.1% in 2017, with further economic expansion expected in 2019.

Steady growth is projected for private consumption. Rising incomes, coupled with job growth and election-related spending, should help Indonesia sustain consumption growth. Household spending will also benefit from stable consumer prices, with average inflation forecast to be 3.4% in 2018 and 3.5% in 2019.

Private investment will continue to benefit from the ongoing improvement of the business environment, including better infrastructure, improved logistics, and simplified regulations. Public spending on infrastructure should hold up this year and next, with the scheduled completion of several large projects.

With stronger investment and faster economic growth, the current account deficit is expected to widen to 2.6% of GDP both this year and next. The report notes that in the face of global economic uncertainties, including international trade tensions and monetary tightening in the US, effective policies that balance growth and stability goals are critical. Fiscal policy has remained prudent, with low budget deficits and government debt at 30% of GDP.

“It is important for Indonesia to stay the course by taking measures to boost medium- and long-term prospects for economic growth that is sustainable and benefits all Indonesians,” said Mr. Wicklein. “This will require high and accelerated investment in critical infrastructure, improvement in education and skills, and economic reforms."

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members—48 from the region, including Indonesia. In 2017, ADB operations totaled $32.2 billion, including $11.9 billion in cofinancing.