ECONOMIC LANDSCAPE…

Indonesia
The Emerging Dragon

Having previously been overlooked in favour of other Asian countries such as India and China, the Indonesian economy is now impossible to ignore.

The emerging tiger of Southeast Asia, Indonesia boasts a thriving economy, a young and dynamic workforce, and a rapidly growing real estate market.

Experience the energy and excitement of Indonesia and unlock the possibilities of this emerging tiger.

Economic recovery and growth were gaining traction throughout 2022, supported by strong export, investment and household spending growth.

Indonesia's economy is expected to experience a mild slowdown in 2023. Growth is projected to be 4.8% in 2023. Nevertheless, the figure is encouraging considering that the world’s economies are expected to experience a major ‘slowbalisation’ in 2023 as the battle against inflation continues.

The increases in subsidised petrol and global commodity prices pushed up annual inflation in 2022. Inflation has since cooled down as Bank Indonesia has been switching to a more aggressive monetary policy stance. However, inflation is expected to stay above Bank Indonesia’s target of 2-4% in 2023.

Indonesia history and outlook

a source of growth…

Indonesia's economy showcased resilience and growth in the first quarter of 2023, with a year-on-year advancement of 5.03%.

This surpassed market expectations, which predicted a growth rate of 4.95%, and built upon the positive momentum from the previous quarter, where the economy experienced a 5.01% expansion in the fourth quarter of 2022.

Overall, these positive indicators demonstrate the resilience of Indonesia's economy, driven by strong household consumption and a rebound in government spending. The sustained growth and improving economic conditions create a favorable environment for both domestic and international investors seeking opportunities in Indonesia.

This was the 8th consecutive period of expansion, amid faster rises in household consumption (4.54% vs 4.48% in Q4) and a rebound in government consumption (3.99% vs -4.77%).

Indonesian investment Highlights

  • Indonesia’s foreign and domestic investments reached their all-time high in 2022. The Omnibus Law, which harmonises government policies from regional to central levels, has improved the attractiveness of investing in Indonesia. Sustainable investment, which seeks to balance financial returns with Environmental, Social and Governance (“ESG”) aspects, is the key area to focus on over the next ten years.

  • Investment became the second largest contributor to Indonesia's GDP, with a 32.1% contribution in 2022. During 2022, the quarterly FDI realisation figures kept hitting new records. Based on 2021 data, the top five FDI contributors are Singapore (expected growth in 2023 of +2.3%), China (+4.5%), Japan (+1.2%), Hong Kong (+3.9%) and Malaysia (+4.0%).

  • These countries are expected to experience a mild slowdown in 2023 but comfortably avoid recession, in contrast to advanced European economies. The easing of zero-COVID restrictions in China means that the country now expects an accelerated growth and investment in 2023.

  • From the sectoral perspective, based on Indonesia’s FDI realisation in 2022, the top sectors are base metal and metals manufacturing, mining, chemicals and pharmaceuticals, transportation and telecommunications.

Government and Development Highlights

  • The Government of Indonesia has made efforts to mitigate the potential adverse effects of economic uncertainty, focusing on shielding purchasing power and nurturing investment opportunities while still making strides towards a green transition.

  • The Government of Indonesia’s efforts to improve living standards are constrained by its budget capacity, and the government needs to increase coverage and quality infrastructure. More focus on Eastern Indonesia is expected considering the uneven development that disproportionately affects the region.

  • These countries are expected to experience a mild slowdown in 2023 but comfortably avoid recession, in contrast to advanced European economies. The easing of zero-COVID restrictions in China means that the country now expects an accelerated growth and investment in 2023.

  • The Government of Indonesia’s current priority is to maintain purchasing power through smart subsidies and concurrently keep its budget deficits below 3% of Indonesia’s GDP. It seeks to do this primarily by increasing tax and non-tax revenue and improving spending efficiency.

Indonesian Trade Highlights

  • Indonesia has revived its international trade activities while strengthening trade partnerships with other economies. Such measures are expected to provide a cushion against the economic uncertainty of 2023.

  • Potentially low export growth could arise from slowing global growth but Indonesia’s core commodity exports (i.e. coal, palm oil, and nickel products) would remain in strong demand as long as the Ukraine war drags on.

  • Net trade contributed positively, as exports grew by 11.68% and imports - by 2.77%. Meanwhile, fixed investment continued to increase (2.11% vs 3.33%). On the production side, output rose for agriculture (0.34%), manufacturing (4.43%), utilities (2.67%), wholesale & retail trade (4.89%), transport & warehouse (15.93%), information & communication (7.19%), and mining (4.92%).

The central bank maintained its growth outlook for this year at the upper end of its 4.5% to 5.3% range. In 2022, the economy expanded by 5.31%, the most since 2013, boosted by pandemic-related restrictions removal and a global commodity boom that lifted exports to a record high

GDP Annual Growth Rate in Indonesia is expected to be 5.10 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. In the long-term, the Indonesia GDP Annual Growth Rate is projected to trend around 4.70 percent in 2024 and 4.50 percent in 2025, according to our econometric models.

Forecast for growth…

BOUNCE BACK GDP GROWTH RATE - INDONESIA VS THAILAND

  • Foreign tourist arrivals in Indonesia jumped 276.31 percent year-on-year to 865.81 thousand in April 2023, amid a continued recovery in the tourism sector as the economy fully reopened from pandemic restrictions. International arrivals were dominated by visitors from Malaysia (133.43%), Singapore (543.988%), and Australia (602.47%). Considering the first four months of the year, tourist arrivals surged 393.83 percent from the same period in 2022. Last year, tourist arrivals surged 251.3 percent to 5.47 million, exceeding the government's target of 3.6 million visitors, buoyed by an improvement in global travel. The Southeast Asian nation has set a target of more than 7 million visitors this year.

  • Indonesia's annual inflation rate fell to a 12-month low of 4% in May of 2023 from 4.33% in April and below the market consensus of 4.22%, with food prices rising the least in 14 months (4.27% vs 4.58%). The inflation rate for the first time since May 2022 was at the upper end of its central bank's 2-4% target range, after 11 months above the target range. Prices moderated for housing (2.48% vs 2.53% in April), transport (10.62% vs 11.96%), furnishings (2.48% vs 3.27%), accommodation/restaurant (3.38% vs 3.79%), and clothing (1.54% vs 1.80%). At the same time, inflation was steady for education (2.75%). In addition, prices of information & financials dropped faster (-0.27% vs -0.25%). Core inflation eased to an 11-month low of 2.66% in May from 2.83% in April, below forecasts of 2.8%. On a monthly basis, consumer prices edged up 0.09% in May, the least in six months, after a prior 0.33% rise, which was the highest in three months, and below the market consensus of a 0.3% gain.

  • Residential property prices in Indonesia climbed by 1.79 percent year-on-year during the first quarter of 2023, after a 2 percent growth in the previous period. It was the weakest growth in new home prices since the second quarter of 2022, due to drops in sales of residential property, amid rising costs for building materials and interest rates. Prices eased for all categories: small (1.77% vs 2.08% in Q4), medium properties (2.76% vs 3.22%), and large house prices (1.36% vs 1.43%). Among cities, prices grew the most in Pekanbaru (4.17%), Banda Lampung (4.08%), Yogyakarta (3.41%), Batam (2.60%), and Pontianak (2.26%). Sales of residential property shrank by 8.26% yoy in the first quarter of 2023, reversing from a 4.54% gain in the fourth quarter of 2022.

  • Retail sales in Indonesia surged by 4.9 percent year-on-year in March 2023, accelerating from a 0.6 percent gain in the previous month. It was the second straight month of increase in retail sales and the strongest growth since last August, amid strength in consumption ahead of the holy month of Ramadan and the Eid celebration. The upturn was mainly supported by a pickup in sales of foods (9.4% vs 3.5% in February), clothing (17.3% vs 16.6%), and a rebound in sales of cultural & recreational goods (1.1% vs -2.2%). Meantime, sales continued to drop for fuels (-12.5% vs -9.8%), home appliances (-9.0% vs -6.8), automotive parts & accessories (-9.5% vs -1.5%), and information & communication (-18.4% vs -18.9%). On a monthly basis, retail sales jumped by 7.0% in March, the first monthly increase in three months, recovering from a 3.4% fall in February.

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