As Indonesia’s economic growth continued to slow in the second quarter of 2015, the Indonesian Employers Association (Apindo) warned of increasing unemployment in Southeast Asia’s largest economy. Each 1 percent gross domestic product (GDP) growth can generate between 200,000 and 300,000 new jobs in Indonesia. As such, when economic growth slows, society misses out on new jobs and with around two million Indonesians entering the labor force each year, job generation is an important task of the government.
Fransiscus Welirang, Chairman of Apindo, said that although Indonesia’s economic growth is still above growth levels of most other nations, it is important that the government succeeds in raising economic growth from the current six-year low of 4.67 percent (y/y) in Q2-2015 in order to boost employment opportunities. When economic growth drops below 5 percent (y/y), the unemployment rate will rise.
According to the latest data from Statistics Indonesia (BPS), Indonesia has an unemployment rate of 5.8 percent (February 2015), which translates to 7.5 million unemployed people (the country’s total population numbers over 250 million). The unemployment rate is highest for people between the age of 15 and 24 years (far above the country's national average) as freshly graduated students from Indonesian universities, vocational schools and secondary schools encounter difficulties finding their place in the national workforce.
Indonesian Labor Force:
¹ in February 2015
Source: Statistics Indonesia
Moreover, Indonesia is still plagued by high inflation after several fuel price reforms (including the scrapping of costly gasoline subsidies in January 2015). Inflation remained at 7.26 percent (y/y) in July 2015 and for a large proportion of the people this is worrisome. One characteristic of Indonesia is that a large quantity of its population is clustered just above the poverty line, implying that a relatively minor inflationary shock can push this group below that line.
In response to Indonesia’s economic slowdown, Vice President Jusuf Kalla said that the 4.67 percent (y/y) growth pace in Q2-2015 was particularly caused by external factors (sluggish global economic growth). Despite touching a six-year low, Kalla emphasized that the current growth pace of Indonesia is higher than that posted by most other nations. He is optimistic that Indonesia can reach +5 percent GDP growth in the third quarter provided that productivity, investment, and expenditure on development will rise. Particularly government-led infrastructure development is expected to be key for accelerated economic growth. Kalla also expressed the need to find new (non-traditional) export markets.
Indonesia's Quarterly GDP Growth 2009–2015 (annual % change):
|Year|| Quarter I
||Quarter II||Quarter III||Quarter IV|
Source: Statistics Indonesia (BPS)