An Update on the Economy of Indonesia: What Are the Latest Macroeconomic Data Telling Us?
At the annual meeting of Indonesia’s central bank (Bank Indonesia) at the very end of November 2023, Bank Indonesia Governor Perry Warjiyo said the central bank is optimistic about accelerating economic growth in the next two years (2024 – 2025).
For 2024, Bank Indonesia has set its outlook for Indonesia’s economic growth at the range of 4.7–5.5 percent year-on-year (y/y), which is a higher range than the one set for 2023 (4.5–5.3 percent y/y). Meanwhile, Bank Indonesia’s outlook is even higher (albeit modestly) for 2025, at the range of 4.8–5.6 percent (y/y).
It is interesting to note Bank Indonesia’s economic forecasts, because contrary to the economic growth targets set by the central government of Indonesia (that have often been unrealistically high), Bank Indonesia enjoys a history of more accurate growth predictions.
While Bank Indonesia is the first to acknowledge that the international environment remains very uncertain, it does see room for growth at home, particularly stemming from the digital economy of Indonesia. Bank Indonesia expects the value of digital banking transactions to rise 23.2 percent (y/y) in 2024 to IDR 71.58 trillion (approx. USD $4.6 billion), followed by an expected growth rate of 18.8 percent (y/y) in 2025.
Meanwhile, Bank Indonesia expects e-commerce transactions in Indonesia to grow 2.8 percent (y/y) to IDR 487 trillion (approx. USD $31.4 billion) in 2024, followed by a 3.3 percent (y/y) growth rate in 2025.
However, it also sees room for strong growth in the conventional banking sector, as it set a forecast for loan growth in the range of 10–12 percent (y/y) in 2024, followed by an 11–13 growth range in 2025.
Regarding Indonesian inflation, Bank Indonesia set its outlook on the range of 1.5–3.5 percent (y/y) in both 2024 and 2025. Regarding the rupiah rate, Bank Indonesia expects to see a stable rupiah in 2024 as the US Federal Reserve seems finished with its latest hiking cycle, implying there is actually room for rate cuts in 2024 (which is a recipe for capital inflows into Indonesia, hence rupiah appreciation).
Lastly, Bank Indonesia expects to see a relatively low current account deficit in 2024 and 2025 in line with easing commodity prices. For 2024, the current account deficit is expected to come in the range of 0.1 – 0.9 percent of Indonesia’s gross domestic product (GDP), followed by a wider deficit in the range of 0.5 – 1.3 percent of GPD in 2025. This suggests that Indonesia’s trade balance, which has shown comfortably surpluses ever since the second half of 2020 (thanks to high commodity prices), will lose some of its shine in the years ahead.
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