The above-mentioned question was answered by Indonesia’s Statistical Agency (in Indonesian: Badan Pusat Statistik, or BPS) when it released the latest Q2-2022 gross domestic product (GDP) of Indonesia on 5 August 2022. The Indonesian economy expanded by 5.44 percent year-on-year (y/y) in the second quarter of the year, well above our forecast of 4.5 percent (y/y) and even above the general consensus (that we estimate averaged around 5.3 percent y/y). This makes it all the more interesting to take a look at where exactly the better-than-expected growth originates from.

With economic activity coming in better-than-expected in Q2-2022 it also allows for a more optimistic attitude toward economic expansion in the remainder of the year, although a number of significant challenges persist that could undermine growth.

Table 1 (above) shows the annual GDP growth rates of Indonesia, per quarter. The 5.44 percent (y/y) growth rate in Q2-2022 is an improvement from the 5.01 percent (y/y) growth rate set in the preceding quarter – despite the higher base as growth had rebounded 7.07 percent (y/y) in Q2-2021. A key advantage of Q2 in both 2021 and 2022 (compared to Q1) was that the Ramadan and Idul Fitri celebrations took place in April/May, and so consumption peaked (implying more goods and services needed to be produced or provided, and transported, or – in other words – a boost in economic activity).

Before we delve into the data, we can reveal that there are two factors that especially supported Indonesia’s economic growth in Q2-2022:

(1) Solid growth of household consumption on the back of easing concerns over the COVID-19 virus as well as loser social and corporate restrictions; and

(2) Very impressive export growth thanks to high commodity prices (although palm oil exports experienced a hiccup amid a temporary government palm oil export ban, while imports rose at a much slower pace (allowing a comfortable trade surplus).

What is also interesting to mention here is that government spending continued to contract – quite understandably as the government needs to cut spending in order to safeguard a healthy government budget balance. Moreover, the need for social and corporate assistance spending is waning as restrictions are eased. Interestingly enough though, the government’s budget balance showed a rare surplus of IDR 73.6 trillion (approx. USD $5 billion, or 0.39 percent of GDP) in the first half of 2022. This implies that there certainly is room for more government spending. However, a drop in global commodity prices can rapidly turn the tables (making the energy subsidies – funded through windfall revenue from coal and palm oil exports – a major financial burden), and so we can understand it if policymakers are hesitant to engage in new long-term, capital-intensive public assistance spending programs at this point.


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