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Indonesia Real GDP growth will slow to 4.7% in 2023 and then reach 5.1% in 2024, once the impact of monetary tightening fades away and uncertainty about the 2024 elections abates. The economy has benefitted from strong commodity prices and will be sensitive to mounting global headwinds, including geopolitical tensions, slowing trade growth, and financial volatility. Low real wage increases and a soft labour market are holding back household consumption. Monetary policy has become more restrictive since mid-2022, with the policy rate rising from 3.5% to 5.75%. Credit growth has weakened. Fiscal policy will become less supportive following the reinstatement of the 3%-of-GDP limit for the budget deficit. The incoming administration after the February 2024 elections should prioritise structural reforms to increase productivity and international competitiveness, while monitoring the impact of industrial and trade policies and adjusting them in case of disappointing results. Disruptions from earlier pandemic-related lockdowns are still being felt Output growth picked up in the fourth quarter of 2022, and was 5.0% higher than a year earlier, but moderated in the first quarter of 2023. The lifting of all remaining mobility restrictions as of 1 January 2023 is supporting the recovery in the services sector, but consumption is still significantly below its prepandemic trend. Demand for consumer durables was subdued in 2022. For instance, two-wheel vehicle sales were 10% lower than the pre-pandemic seven-year average, although sales picked up in early 2023. Consumers’ caution partly reflects anaemic real wage growth. Leading indicators such as cement purchases and machinery imports suggest that the contribution of investment to GDP growth remains muted, despite the expansion of the government infrastructure programme. Price pressures continued to fade as the modest jump in food and public transport prices during this year’s Eid-al-Fitr period contributed to the fall in inflation, to 4.3% year-on-year in April. Another positive signal comes from new stock market listings, with the number of listings at an all-time high in 2022, and the proceeds from listings the largest ever in the first quarter of this year.
Indonesia 1
Source: OECD Economic Outlook 113 database; and CEIC. StatLink 2 https://stat.link/xgk1d7
OECD ECONOMIC OUTLOOK, VOLUME 2023 ISSUE 1: PRELIMINARY VERSION © OECD 2023