Indonesia Economy

Indonesia, Southeast Asia’s biggest economy attained 6%-plus growth in 2012, in-spite of falling exports. In the year 2012 the inflation fell to a 12-year low. GDP growth rate is prognosticated to rapidly rise in the next 2 years. GDP growth rate of 6.2% in 2012 was resulted because of a strong private consumption and an improved performance in fixed capital investment. The net exports fell, impeding GDP growth. But as a result of rise in private consumption by 5.3%, the highest in the 4 years; it contributed almost half of the total GDP growth on the expenditure side. The government increased its public expenditure by investing more in the infrastructure, the central governments capital spending rose by 18.9%, contributing a rise in the ratio of fixed capital formation to GDP, which rose to 33.2%, the highest in the last 20 years. Foreign Direct Investment rose by 26.1% to $23.6 billion.

Indonesia Economic Performance GDP Graph 1980-2013

Indonesia Economic Performance Inflation Graph 1980-2013

Indonesia Economic Performance 1980-2013
Year GDP % Change Inflation % Change Year GDP % Change Inflation % Change
1980 8.72 18.02 1997 4.70 6.23
1981 8.15 12.24 1998 -13.13 58.39
1982 1.10 9.48 1999 0.79 20.49
1983 8.45 11.79 2000 4.92 3.72
1984 7.17 10.46 2001 3.64 11.50
1985 3.48 4.73 2002 4.50 11.88
1986 5.96 5.83 2003 4.78 6.59
1987 5.30 9.28 2004 5.03 6.24
1988 6.36 8.04 2005 5.69 10.45
1989 9.08 6.42 2006 5.50 13.11
1990 9.00 7.81 2007 6.35 6.41
1991 8.93 9.42 2008 6.01 9.78
1992 7.22 7.53 2009 4.63 4.81
1993 7.25 9.69 2010 6.22 5.13
1994 7.54 8.52 2011 6.49 5.36
1995 8.40 9.43 2012 6.26 4.28
1996 7.64 7.97 2013 5.78 6.41

Indonesia Economic Performance 2013
• The economic growth rate for the year 2013 and 2014 is projected to rise to 6.4% and 6.6% respectively, supported by strong private consumption, improvement in investment performance and gradual rise in the world trade. Growth rate of 6.6% is projected for the year 2014; it would be the highest in the last 15 years.

• The year 2013 is expected to witness a rise in the private consumption, stimulated by rise in employment opportunities, a 30% increase in average minimum wages, a 7% rise in public service wages and a tax break implemented in January 2013. Both private and public sector investment is likely to show expansion. This has been predicted because of the latest upgrades in sovereign credit ratings, lower level of interest rates, and rise in budget allocations for infrastructure spending. The government is encouraging state-owned enterprises to increase investment in building infrastructure and is making intensive efforts to speed up budget execution, planned for infrastructure spending in the year 2013.

• Exports are expected to rise in the light of more robust growth evident in the People’s Republic of China and some other markets in 2013. In the year 2014, the export upturn should gather pace as prospects for growth are likely to show signs of upheaval in major industrial economies. The haul on GDP growth from net exports is likely to moderate. Merchandise exports are expected to rise by 7% in 2013. High investments will keep imports of capital goods reasonably high, though imports of consumption goods are expected to be restrained by the rupiah’s depreciation.

• The trade surplus is expected to increase and the current account deficit to narrow down. Inflows of direct and portfolio investment are seen keeping the balance of payments in surplus. Downward pressure on the rupiah is prognosticated to decline as the current account deficit contracts.

• Inflation rate forecast to average 5.2% in 2013. A rise in the food prices raised inflation to 5.3% in the first 3 months of this year, 2013. Mounting pressure from this source has although alleviated, as the harvest season approached in April. Inflation in 2014 is expected to average 4.7%. The government aims at a budget deficit equivalent to 1.6% of GDP in the year 2013, falling just a little from last year’s outcome of 1.8%. The monetary policy being implemented by the Bank of Indonesia will accommodate the economic growth.

• The shift of the current account into deficit has made the country more dependent on capital inflows. A rapid slowdown in the inflows, or a turnaround of outflows, would put pressure on the balance of payments and could disturb the financing of the budget. However the government has taken some steps to manage this risk by setting up a bond stabilization fund and arranging for a $5 billion standby loan from development partners.

• The domestic risks that could hinder the growth of the economy include investment and inflation. An unanticipated spike in inflation, possibly caused by tight food supplies or a large increase in fuel prices, would affect consumption, investor sentiment, and capital inflows.

• The JCI Equity Index is up by 13% as of March 8, 2013 supported by eeffective performance by finance especially the property sector. The Rupiah fell to a three year low against the US dollar in January 2013.

• The Consumer Price Index inflation rate was at a 12 year low in the year 2012 but rose by more than 1% points in Jan-Feb 2013. There has been a significant rise in food inflation from 5-7% recorded in December 2012 to 10.3% in Feb 2013. Food Prices usually rise in the months leading to main harvest. This year the seasonal effect was heightened due to heavy flooding in January.

• The fiscal deficit is prognosticated to expand in 2013 because of higher fuel subsidy spending.Indonesia’s prudent fiscal policy stance is set to persist in the near term as the government is striving to attain a balanced budget by 2016.

• Private Investment which accounts for a major portion of fixed capital formation is likely to witness a growing trend through 2014 but the reduced capital goods inflow hints at the extension of moderation in the investment growth.

Indonesia Economic Structure
Indonesia is one of the emerging market in the world, It is classified as a newly industrialized country due to the growth of services sector which contributes to 48.9% to the economy and industrial manufacturing which contributes to 12.8 %. It still possess a strong agricultural sector which contributes 38.3% to the economy.

Indonesian Economic History
Due to political instability the Indonesian economy suffered in the 1960s. After many government reforms and policies change, the Indonesian economy started to grow. The GDP continued to grow from 1970 to 1997 at varying levels. There are major weaknesses in the economy-mismanagement of financial system, corruption etc. Due to Asian Financial crisis , Indonesia economy suffered and had to introduce major structural reforms for macroeconomic stabilization. In 2005 Indonesia suffered crisis due to the international oil price rise and imports. Inflation rate rise to 10.4%.and GDP reached to 5.6%.

In spite of global economic crisis , economy grew at 6.3% and managed the recession mainly due to strong domestic demand and strong government financial support. Indonesia also have strong macroeconomic policies which helped to stabilize the economy. Still problems like the trade account deficit, rise in oil price will continue to affect the market. In 2014 , Parliamentary elections will take place and political instability is going to some extent affect the economy of the country.

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Last Updated on : 23th February 2015 Next Update : February 2016