The World Bank's 5.3 percent gross domestic product (GDP) growth forecast for Indonesia in the 2018-2020 period implies accelerating growth from the estimated 5.1 percent (y/y) growth pace in 2017. However, the forecast is not as optimistic as the Indonesian government's 5.4 percent (y/y) growth target that was set in the 2018 state budget.

One of the key reasons why the World Bank expects a solid jump to 5.3 percent (y/y) GDP growth for Indonesia in 2018 and beyond is because the nation's household consumption is estimated to improve on the back of rising wages. Meanwhile, rising commodity prices are also expected to boost the economy of Southeast Asia's largest economy. Indonesia is one of the world's big commodity exporters.

Although the 5.3 percent (y/y) growth pace is not as high as Indonesian President Joko Widodo once promised during his presidential campaign back in 2014 (when he promised to bring Indonesia back to the growth level of 7 percent that was last seen during the days of former president Suharto), Indonesia is one of the few Asian economies that is not expected to see sliding economic growth in the years ahead. Economic growth of Malaysia, for example, is estimated to slide almost one percent between 2017 (5.8 percent) and 2020 (4.7 percent). The only countries that are estimated to show an improvement in economic growth in the 2017-2020 period are Indonesia, Laos and Myanmar (see table below).

World Bank's Economic Growth Projections:

Country 2017 2018 2019 2020
China  6.8  6.4  6.3  6.2
Cambodia  6.8  6.9  6.7  6.7
Philippines  6.7  6.7  6.7  6.5
Vietnam  6.7  6.5  6.5  6.5
Laos  6.7  6.6  6.9  6.9
Myanmar  6.4  6.7  6.9  6.9
Malaysia  5.8  5.2  5.0  4.7
Indonesia  5.1  5.3  5.3  5.3
Fiji  3.8  3.5  3.3  3.2
Thailand  3.5  3.6  3.5  3.4

Source: World Bank

Earlier, the International Monetary Fund (IMF) released a report with similar contents. The IMF also expects Indonesia to grow 5.3 percent (y/y) in 2018 supported by strong and prudent macroeconomic and monetary policies as well as recovering commodity prices. It specifically applauded the government's efforts to improve Indonesia's competitiveness.

Indonesian inflation is expected to remain relatively low at 3.6 percent (y/y) in 2017 on the back of stable administered prices and stable food prices. Meanwhile, Indonesia's current account deficit is expected to widen slightly to 1.9 percent of GDP.