Indonesia’s economy performs well

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JAKARTA (ANTARA) – After the shock of the COVID-19 pandemic, the world has found a glimmer of hope, with economic growth expected to reach 2.6% in 2024 despite looming global geopolitical tensions and prolonged high global interest rates.

The growth was mainly due to the continued solid expansion of the US economy.

Global growth is projected to average 2.7 percent in 2025-2026, consistent with stronger trade growth and broad but modest monetary policy easing to support economic activity.

However, this growth rate is far lower than the average level of 3.1% in the decade before the outbreak of the COVID-19 pandemic. The World Bank’s latest Global Economic Prospects report points out that compared with the decade before the outbreak of the COVID-19 pandemic, economic growth in both developed and developing countries will slow down.

Nearly 60% of countries worldwide (home to more than 80% of the world’s population) will also see economic growth in 2024-2025 below the 2010 average. As conflicts escalate, the outlook for many fragile states remains bleak.

Meanwhile, developing countries are expected to grow by an average of 4% in 2024-2025, slightly lower than in 2023.

In addition, global inflation is expected to slow to 3.5% in 2024 and 2.9% in 2025, although the pace of decline in inflation is slower than previously expected.

China’s economic growth will slow in 2024 and even slower in 2025-2026. As the structural slowdown continues, cyclical challenges will drag down economic growth in the near future.

Growth in emerging market and developing economies, excluding China, is projected to increase to 3.5 percent in 2024 and strengthen to average 3.9 percent in 2025-26, consistent with lower inflation, improving financial conditions, and higher external demand.

Fragile states, including low-income countries and those facing severe conflict and violence, continue to face significant challenges, and growth prospects are deteriorating.

Indmit Gill, World Bank Group Chief Economist and Senior Vice President for Development Economics, said Indonesia and India are two countries with strong economic performance.

Indonesia is expected to benefit from a growing middle class and generally prudent economic policies, with economic growth averaging 5.1% over the next two years.

In addition, India’s economy improved, driven by strong domestic demand, a surge in investment and activity in the services sector.

India’s economy is expected to grow at an average annual rate of 6.7% between 2024 and 2026, which could make South Asia the fastest-growing region in the world.

This performance suggests that the economy is growing fast but can maintain that momentum even under difficult circumstances. Countries can improve long-term economic growth by developing policies to enhance human capital, increase productivity, make public spending more efficient, and encourage more women to enter the labor force.

Steady growth

The World Bank raised its forecast for Indonesia’s economic growth in 2024 to 5% from the previous 4.9%, taking into account the upward revision of global economic growth forecasts, especially for the United States and China, Indonesia’s major trading partners.

Specifically, the World Bank estimates that Indonesia’s economic growth will remain solid, supported by a growing middle class and a shift toward extra cautious economic policies.

The World Bank also raised its forecast for Indonesia’s economic growth in 2025 to 5.1%, an increase of 0.2 percentage points from the previous forecast. Similarly, Indonesia’s economic growth is expected to reach 5.1% in 2026.

Indonesia’s financial services industry also remains stable, said Mahendra Siregar, chairman of the board of the Financial Services Authority (OJK).

Amid global uncertainty caused by rising geopolitical tensions, the possibility of a large-scale trade war, and the continued below-expectation performance of the global economy, strong capital levels and ample liquidity support the continued stability of the financial services industry.

In the first quarter of 2024, Indonesia’s economic growth rate was 5.11% (year-on-year).

In terms of forecasts, GDP growth in most countries in the Asia-Pacific region (excluding China), including Indonesia, Malaysia and the Philippines, will be supported by strong private sector growth, low inflation, lower loan costs and strong labor market conditions.

Josua Pardede, chief economist at Bank Gemmas Indonesia, said Indonesia’s economic growth rate in 2024 will still be around 5% to 5.1%, in line with the forecasts of the World Bank and the International Monetary Fund (IMF).

However, there are still downside risks to economic growth, especially for the public consumption component, whose growth rate remains lower than the national growth rate, which is consistent with the possibility of a decline in people’s real income amid rising living costs, especially for the middle class.

As a result, consumers’ tendency to curb spending could affect companies’ sales performance.

The government needs to focus on preventing a sharp increase in the cost of living in the community and carefully adjust the prices of goods or services it regulates, such as fuel, liquefied petroleum gas (LPG) and electricity.

In addition, plans to adjust the excise tax on plastics and packaged sweetened drinks are also expected to increase people’s living costs, which also requires caution.

Therefore, for this, the government must manage this momentum so that the purchasing power of the community does not decline with the price-related programs of the goods or services it regulates and encourage food price stability which also affects the purchasing power of the community.

In addition, the government should encourage high-quality economic growth that absorbs a large number of workers, which is likely to increase people’s real income and reduce unemployment and poverty rates.

As real incomes in society increase, it is hoped that consumer optimism and community purchasing power will increase, ultimately supporting robust economic growth.

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