The Asian Development Bank (ADB) expects Indonesia's economic growth to rebound in 2016 on the back of improving government spending realization (specifically on infrastructure development) and the series of economic policy packages that have been unveiled by the government since September 2015. Consumers and private investors are expected to respond positively to these government efforts hence contributing to macroeconomic growth.
In its flagship report 'Asian Development Outlook 2016', released today (30/03), the ADB states that Indonesia's gross domestic product (GDP) is estimated to accelerate from 4.8 percent (y/y) in 2015 - constituting a five-year low - to 5.2 percent (y/y) in 2016, and then to 5.5 percent (y/y) in 2017.
Although global financial market volatility remains a factor at play in 2016 (due to China's economic slowdown and uncertainty about more interest rate hikes in the USA), enhanced infrastructure development in Indonesia and the government's economic reforms (including deregulation of the economy and tax incentives for investors) give rise to optimism and market confidence which should lead to rising private investment and consumption in Southeast Asia's largest economy. The ADB does not see rising external demand for Indonesian commodities and therefore the nation's economic growth will be mainly fueled by domestic factors.
Steven Tabor, Country Director for Indonesia, stated that it is vital for Indonesia remain committed to its ambitious public investment program, to deepen and safeguard the momentum of these reforms, to boost productivity, attract both foreign and domestic direct investment, and nurture new sources of growth. Diversifying economic activity in Indonesia would reduce ongoing dependence on a narrow range of commodities (particularly crude palm oil and coal).
Tabor added that the reform packages should be expanded to address barriers to micro- and small-enterprise development, deepen financial markets, improve land titling and registration, and address labor market rigidities.
In the report the ADB also notes that an expanding manufacturing sector would help as well as a stronger focus on those sectors or industries that have room for strong growth such as tourism, high-value agriculture, marine fisheries, aquaculture and e-commerce.
Indonesia's Quarterly GDP Growth 2009-2015 (annual % change):
|Year|| Quarter I
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Source: Statistics Indonesia (BPS)