ASIATODAY.ID, JAKARTA – The Asian Development Bank (ADB) projects that Indonesia’s economy will grow 5 percent in 2024 and 2025, supported by investment and private consumption.
“On balance, domestic demand will continue to drive growth and offset the weak contribution of net exports,” explained the ADB in the April 2024 Asian Development Outlook annual report in Jakarta, Friday, April 26 2024.
ADB Chief Economist Albert Park said strong private consumption, public infrastructure spending and gradual increases in investment will help maintain gross domestic product (GDP) growth of 5 percent in 2024 and 2025.
Inflation is expected to further decline from an average of 3.7 percent in 2023 to 2.8 in 2024 and 2025.
Better supply side management and controlled inflation expectations will help keep inflation in the lower inflation target range.
Park views that the inflation control team and the National Movement to Control Food Inflation will continue to play an important role in managing inflation caused by domestic costs.
In 2024, a smooth election in February could increase business confidence, resulting in a stronger and faster investment attractor.
However, it is possible that the Fed’s interest rates will remain higher for longer than expected, continued geopolitical uncertainty, and further climate change-related shocks could disrupt global value chains and lead to sharper trade declines.
On the other hand, monetary policy will continue to target price stability, with a focus on managing capital flows and the exchange rate.
Fiscal policy will stimulate growth in 2024. The government increased the budget deficit target in 2024 to 2.3 percent of GDP from 1.7 percent of GDP in 2023. Civil servant salaries increased. The social protection budget is expected to increase by around 12 percent.
Total public investment in 2024, including financing investments such as capital injections into state-owned enterprises, will remain at 1.9 percent of GDP.
Government revenues are expected to rise by one percent in 2024, and spending will increase by 6.1 percent. Due to the government’s cautious projections, revenues may exceed expectations and reduce the deficit.
Election-related spending, government social assistance programs, a salary increase for civil servants in 2024, and expectations of lower inflation over the forecast period will boost consumption.
Investment will likely remain stable in 2024 and increase in 2025, driven by government projects and previous reforms.
The current government is likely to accelerate priority infrastructure and Indonesian Capital City (IKN) projects until the new government takes office in October 2024.
Private investment is expected to increase in 2025 as the new government sets out its plans, and the business world’s “wait and see” attitude towards investment fades.
Manufacturing is expected to continue to grow as the manufacturing purchasing managers index continues to increase over the last 30 months. It is also hoped that the gradual implementation of the Job Creation Omnibus Law will help encourage investment in 2025.
Meanwhile, Indonesian Minister of Finance, Sri Mulyani Indrawati projects that Indonesia’s economic growth in the first quarter of 2024 will be able to reach 5.17% on an annual basis (year-on-year/yoy).
Sri Mulyani’s projection is almost close to the macroeconomic assumption for overall economic growth for the year, at the level of 5.2% (yoy).
“We estimate economic growth in the first quarter of 2024 to grow at 5.17%, so it is quite close to macro assumptions,” he said in the April edition of our APBN Press Conference, Friday, April 26 2024.
Sri Mulyani explained that the economy, which grew by more than 5%, was in line with the achievements of Indonesia’s manufacturing PMI, which continued to be expansive amidst global challenges, where as of March 2024 it reached 54.2. Meanwhile, the Consumer Confidence Index (IKK) continues to remain stable at level 123.8. Apart from that, the Mandiri Spending Index is still in a strong position at 46.9, which is influenced by the Ramadhan moment and the eve of Eid al-Fitr.
Furthermore, Sri Mulyani said that the performance of electricity consumption for business was also recorded as still positive at 7.5% even though the industry experienced a contraction.
For cement consumption, after its growth surged in the last two months, this March had to be corrected by 1.9%.
“So overall consumers are quite good but they have to be careful because some are experiencing corrections. “Both corrections due to seasonality such as Ramadan and holidays as well as structural and long-term corrections,” he explained.
Even though he is optimistic, he continues to be wary of the Indonesian economy which is influenced by the current global turbulence. (ATN)
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