In response to the recent World Bank report that projects economic growth of Indonesia at 5.2 percent (year-on-year, yoy) in 2014, the Indonesian government is still optimistic that gross domestic product (GDP) growth of Southeast Asia’s largest economy can reach 5.5 percent this year. Indonesian Finance minister Chatib Basri said that household consumption, which traditionally accounts for about 55 percent of the country’s total economic growth, is expected to remain strong in 2014 and thus support GDP growth.
On Monday (21/07), the World Bank’s latest Indonesia Economic Quarterly report (July 2014 edition) announced that the institution had revised down its forecast for economic growth to 5.2 percent (from the previous forecast of 5.3 percent). The World Bank weakened Indonesia’s outlook due to the weaker outlook for global commodity prices and tighter domestic credit conditions. Moreover, the growing fiscal deficit contributes to the challenges that will be faced by the new government that will be inaugurated in October 2014. This new government will be headed by Joko Widodo, who was announced winner of the presidential election (although rival Prabowo Subianto is expected to challenge the outcome in the Constitutional Court).
Basri, who added that the GDP growth outlook of the World Bank is always more pessimistic than the government’s prognosis, believes that the two presidential elections held in 2014 (legislative and presidential) have boosted domestic consumption.
Visible in the tables below, Indonesian GDP growth has slowed down considerably since 2011 due to international turmoil (impacting on commodity prices and export) but also due to tighter domestic monetary policies aimed at restoring the financial make-up of the country after the current account deficit became structural.
Indonesia's Quarterly GDP Growth 2009–2014 (annual % change):
|Year|| Quarter I
||Quarter II||Quarter III||Quarter IV|
Source: Statistics Indonesia (BPS)
Gross Domestic Product of Indonesia 2006-2013:
(in billion USD)
(annual percent change)
|GDP per Capita
Sources: World Bank, International Monetary Fund (IMF) and Statistics Indonesia (BPS)
Regarding Indonesia’s current account deficit troubles, Basri said that the deficit is likely to be kept below the level of three percent of GDP in 2014 (which is generally considered a sustainable level). Contributing factors are the capping of imported fuels at 46 million kiloliters (set in the 2014 State Budget). Moreover, exports are expected to have improved this year due to better commodity prices and more demand from the country’s main trading partners.