Indonesia’s economy is expected to grow 5.3% in 2018 and 2019, as investment accelerates and household consumption improves, according to the Asian Development Bank (ADB)’s flagship annual economic publication, Asian Development Outlook (ADO) 2018, released today.
“Indonesia’s strong macroeconomic management and structural reforms have boosted the investment momentum,” said Winfried Wicklein, ADB’s Country Director for Indonesia. “With continued reform efforts, the country can reach a higher and more inclusive growth.”
The ADO highlights that strengthening investment has improved the quality of growth, with higher capital spending from the government helping to address the infrastructure gap. Investment is expected to continue to accelerate, spurred by positive business sentiment from structural reforms, along with the fast-tracking of several national strategic projects.
In 2017, Indonesia’s economy grew 5.1%, driven by higher export growth, stronger investment, and private consumption, supported by low inflation and solid job growth, including about 1.5 million manufacturing jobs alone.
Inflation averaged 3.8% in 2017 and is forecast to stabilize this year, before edging up slightly to 4.0% in 2019. This should support consumer confidence and help to sustain household spending and real income this year and next.
A pickup in global trade and higher international commodity prices in 2017 helped narrow the current account deficit to 1.7% of Indonesia’s gross domestic product. In 2018, export growth is expected to moderate while imports will likely remain strong, buoyed by demand for capital goods. The current account deficit is therefore expected to widen moderately in 2018 and 2019, the report says.
Externally, risks to Indonesia’s economic outlook include the pace of monetary policy developments in advanced countries and international trade tensions. Domestically, the economy could face potential revenue shortfalls and expenditure delays.
The ADO says Indonesia’s continued efforts in structural reforms can propel the country to a more inclusive growth. Priorities include infrastructure investment, education and skills development, and investment climate reform.
In a special theme chapter, the report narrows in on how technology affects jobs in Asia. It points out that while some of the region’s jobs will be eliminated through automation, new technologies will also help create jobs. The report highlights that policymakers will have to be proactive if the benefits of new technologies are to be shared widely across workers and society. This will require coordinated action to pursue education reforms that promote lifelong learning, maintain labor market flexibility, strengthen social protection systems, and reduce income inequality.
“The key challenge for the Indonesian government and businesses is to capitalize on the opportunities while mitigating risks from new technologies,” Mr. Wicklein said. “Toward this end, ADB is pleased to support the government in gearing up for the challenges ahead, such as researching the impact of disruptive technologies on the macroeconomy and selected sectors, such as manufacturing, finance, energy, e-commerce, and urban development.”