Ina Primiana, Senior Economist at the Centre of Reform on Economics (CORE), is a bit pessimistic about Indonesia's economic growth in 2017. She sees gross domestic product (GDP) expanding by 5.1 percent year-on-year (y/y) this year as commodity prices and the retail sector fail to encourage higher growth.
The 5.1 percent (y/y) growth forecast is in line with the central government target set in the Revised 2017 State Budget. However, this government target was widely considered a rather unambitious target as the government is believed to be eager to over-deliver rather than under-perform. Therefore, if growth realization would be as targeted, then it can be considered a disappointment.
Considering the still tough domestic and global economic conditions, Primiana has some advice for the Indonesian government. "Weak retail sales growth should become a key focus of the government," Primiana said. If left undone, Indonesia's economic growth will not live up to expectations. Thus, the government needs to enhance the structure of the retail sector by consistently harmonizing the multitude of overlapping permits that undermine the amount of investment in this sector as well as efficiency and competitiveness.
Secondly, the government needs to make more efforts to encourage the development of the industrial sector, together with supporting infrastructure (as the lack of infrastructure make investors think twice before investing in the country). When more domestic and foreign investors invest in industries, it will also create plenty of employment opportunities.
Thirdly, Primiana advises the government to synchronize and harmonize government policy between various ministries in order to link the upstream and downstream industries.
Meanwhile, a boost in household spending - which accounts for about 55 percent of Indonesia's total economic growth - would also be required to lift growth higher. Although it remains a bit mysterious, bleak purchasing power in Indonesia is attributed to several factors, including weak commodity prices, a delay in disbursement of the 13th month wage to civil servants, a delay in disbursement of funds related to the Prosperous Family Card (KKS) program for the poorer households, religious tensions and a drop in private investment.
A positive development is that growth of China (one of the most important trading partners of Indonesia) may be better than initially assumed.
Indonesia's Quarterly GDP Growth 2009-2017 (annual % change):
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Source: Statistics Indonesia (BPS)