Optimism for the Indonesian Economy in 2024
Despite facing a number of world economic turmoil after the Covid-19 pandemic and the impact of war between countries, the Indonesian economy has been relatively under control throughout this year.
This article has been translated using AI. See Original .
About AI Translated Article
Please note that this article was automatically translated using Microsoft Azure AI, Open AI, and Google Translation AI. We cannot ensure that the entire content is translated accurately. If you spot any errors or inconsistencies, contact us at hotline@kompas.id, and we'll make every effort to address them. Thank you for your understanding.
The following article was translated using both Microsoft Azure Open AI and Google Translation AI. The original article can be found in Optimisme Menyongsong Perekonomian Indonesia 2024
/https%3A%2F%2Fasset.kgnewsroom.com%2Fphoto%2Fpre%2F2023%2F07%2F20%2Fd481d4e9-74a6-4f7c-a3d2-e25504507d26_jpg.jpg){kind=logo}
Port container landscape at Tanjung Priok Port, Jakarta, Thursday (20/7/2023). The Central Statistics Agency announced that Indonesia's trade balance in the first semester of 2023 recorded a surplus of 19.93 billion US dollars, down by 20.24 percent compared to the same period last year. The surplus was formed by the total export value of 128.66 billion US dollars and the total import value of 108.73 billion US dollars.
Despite facing several economic upheavals in the world post Covid-19 pandemic and the impact of inter-country conflicts, the Indonesian economy has remained relatively stable throughout the year 2023. With this achievement, Indonesia remains optimistic in facing the challenges of the global economy in 2024, which is still full of uncertainty.
Until the end of this year, the panorama of Indonesia's economy depicts a fairly positive performance. This condition is reflected by the achievement of several national economic indicators.
Throughout the first three quarters of 2023, Indonesia's economy is expected to experience an average growth rate of about 5 percent. This figure is significantly higher than the global average growth rate in the past three quarters, which stood at only around 2.9 percent. Bank Indonesia (BI) predicts that Indonesia's economic growth in 2023 will range from 4.5 percent to 5.3 percent.
The relatively controlled economic growth was accompanied by relatively good growth quality. One of them is reflected in the relatively controlled national inflation rate. Indonesia's inflation until November 2023 was controlled at a level of 2.86 percent, far below the global inflation average that reached 7.2 percent.
The next indicator can be seen from the government's obligations to its debts. The total value of the Indonesian government's debt at the end of November 2023 reached Rp 8,041.01 trillion or 38.11 percent of the gross domestic product (GDP). Despite the government's total debt reaching a new record high, its ratio to GDP has decreased compared to the 2021-2022 period.
One fairly good parameter thereafter is the relatively stable rupiah exchange rate. The exchange rate of rupiah against the US dollar has been dynamic throughout this year with the exchange rate ranging between Rp 14,693 and Rp 15,927 per US dollar. At the beginning of the year, the exchange rate of the rupiah struggled to leave the psychological level of Rp 15,000 due to sentiments from both domestic and global markets. These sentiments have also contributed to fluctuations in the value of the rupiah throughout the year.
The relatively stable value of the rupiah is due to the preservation of the national foreign exchange reserves. At the end of October 2023, the foreign exchange reserves were maintained at a total of 133.1 billion US dollars, which is equivalent to financing imports for 6.1 months or repaying debt installments while also financing imports for 5.9 months. The endurance of these foreign exchange reserves is above the international sufficiency standard of approximately 3 months of imports.
The relatively sufficient reserve supply of foreign exchange is closely related to the performance of exports, which tends to be well-maintained. Citing data from the Central Statistics Agency, the value of exports from January to November 2023 was $ 236.41 billion or a decrease of 11.83 percent compared to the same period last year. However, Indonesia still recorded a trade balance surplus that has lasted for the last 43 months. Additionally, some of Indonesia's main trading partners, such as the United States and India, are still increasing their demand for exports from Indonesia.
The vigorous economic activity has also accelerated the absorption of employment in several business sectors. In the period of August 2022-August 2023, the number of employed workers reached 4.5 million people. The absorption indicates the presence of new investments that open up a number of job opportunities. The investment confidence is closely related to the business optimism in seeing future market opportunities. Such a positive vision is reflected in the Manufacturing Purchasing Managers Index (PMI), which stands at an expansive level of 51.7 this year. With a PMI above 50, this indicates that the manufacturing industry in Indonesia is tending to continue to grow.
Also read: Indonesian Economy Predicted to Slow in the Next Two Years
The positive trend shows a promising outlook, which increases the chances of improving the national economic progress, including an increase in profits in the increasingly high international trade balance.
With the increasingly high and evenly spread economic growth in various fields of business, the potential for state revenue has also increased. As of December 12, 2023, state revenue was recorded at Rp 2,553.2 trillion or 103.66 percent of the APBN target of Rp 2,463 trillion.
Compared to the target set in Presidential Regulation Number 75 of 2023 regarding Amendments to Presidential Regulation Number 130 of 2022 on Details of State Revenue and Expenditure Budget for Fiscal Year 2023, state revenue realization at the beginning of December 2023 has reached 96.8 percent. State revenue is expected to reach the target of 100 percent by the end of this year.
However, amidst the indicators that show positive improvement, there is one indicator that is less shining, namely indicators related to energy. The Ministry of Energy and Mineral Resources (ESDM) said that the realization of oil lifting this year did not reach the set target. Referring to data submitted by SKK Migas, the realization of oil lifting until October 2023 is only 604.3 million barrels per day (MBPOD) or 91.6 percent of the APBN lifting target. The number decreased by 0.49 percent compared to the same period last year which was 607.3 MBOPD.
The decreasing realization of oil lifting is something to be wary of considering that national fuel oil (BBM) consumption continues to increase to more than 1.5 million barrels per day. This means that large imports of petroleum and fuel are needed, up to more than 50 percent every day, to meet domestic demand. This puts a huge burden on state finances and makes it vulnerable to global economic and geopolitical turmoil.
Economic challenges 2024
Several national economic indicators show overall good achievement in 2023, reflecting optimism for 2024. However, there should still be vigilance in the face of ongoing world economic uncertainty that seems to persist into the next year.
At a global level, Indonesia's economy could be affected by geopolitical conflicts such as the Israel-Palestine and Russia-Ukraine wars, the heated trade relationship between the United States and China, and the threat of climate change that could disrupt food supply chains.
This condition can cause countries to become more inward looking or prioritize their domestic interests. Policies with nuances of protectionism and populism are increasingly becoming stronger in a number of countries. The next impact could be a decrease in global trade volume so that the rate of world economic growth is hampered.
In addition, the slowdown of China's economy as one of Indonesia's largest trading partner, even in ASEAN, will also affect the performance or export demand of Indonesia next year.
Other heavy pressures are also estimated to still be facing the global economy in 2024. For example, the global inflation rate has not yet returned to pre-pandemic levels, so global benchmark interest rates will last longer. As a result, global liquidity will still be tight so that the cost of funds will also remain high.
At the domestic level, Indonesia is expected to face a number of challenges next year. One of them is related to the predicted contraction of export performance in 2024. This is triggered by the global economic slowdown which has led to a decrease in export demand. Additionally, the prices of several commodities are also expected to decrease.
Also read: Economic Challenges Towards 2045
/https%3A%2F%2Fasset.kgnewsroom.com%2Fphoto%2Fpre%2F2023%2F10%2F24%2Fc40f7136-5e47-4c2b-add7-8bb4d898f3b8_jpg.jpg){kind=logo}
Officials examine physical US dollars at the foreign exchange counter of PT Agung Masayu in Jakarta on Tuesday (10/24/2023). The exchange rate of the Indonesian rupiah remains fluctuating due to the global situation. The rupiah in Jakarta Interbank Spot Dollar Rate (Jisdor) of Bank Indonesia at the closing on Tuesday (10/24/2023) was at the level of Rp 15,869 per US dollar.
Another challenge comes from the potential sustained depreciation of the exchange rate. Bank Indonesia sees the potential for a depreciation of the rupiah exchange rate in 2024. In the 2024 Annual Budget Plan of Bank Indonesia (RATBI), the potential average exchange rate for the rupiah in 2024 is Rp 15,510 per US dollar. The average exchange rate for the rupiah in 2024 is weaker compared to the projected average exchange rate for the rupiah in 2023, which is listed in the ATBI 2023 at Rp 15,280 per US dollar.
On the other hand, in 2024 there will be an effort to open up opportunities for looser monetary policy in line with the relatively controlled interest rate levels, domestic inflation stability, and easing financial market pressures in Indonesia. However, this effort is still constrained by the uncertain and fluctuating global interest rates, placing monetary authorities on guard.
Another condition that also needs careful attention is economic performance during the democratic party period. The 2024 election has the opportunity to put the national economy in a vulnerable condition. Although campaign activities can encourage public consumption, political uncertainty can make investors take a wait and see attitude, thereby impacting market stability.
2024 economic projections
In the midst of the global and domestic economic dynamics, a number of international institutions are projecting Indonesia's economy to be relatively stable next year. The Asian Development Bank (ADB) predicts that Indonesia's economic growth will remain at a level of 5 percent in 2024, even though Indonesia's neighboring countries have revised their growth projections downwards.
In the document "Asian Development Outlook (ADO) December 2023", ADB projects that the economic growth of Southeast Asian countries will only be at 4.7% in 2024. This figure is slightly lower than the September 2023 projection, which estimated it to be at 4.8%. However, Indonesia is projected to remain at 5% level.
Also read: Political Year's Economy Overshadowed by Weakening Consumption
President Joko Widodo expressed his optimism entering 2024 with a good economy and politics. This was conveyed by the President in his speech at the Indonesian Economic Outlook event held at the St Regis Hotel in Jakarta on Friday, December 22, 2023.
According to the Asian Development Bank (ADB), Indonesia's sustained growth rate is supported by high consumer spending and relatively low inflation rates. This is also driven by government and political party spending for election needs.
The International Monetary Fund (IMF) has also presented a similar economic projection, estimating that the Indonesian economy will grow steadily at 5 percent in 2023 and 2024.
Meanwhile, the World Bank projects that Indonesia's economic growth for 2024-2026 will be around 4.9 percent, slightly lower than the 5 percent projection for 2023. In its December 2023 report "Indonesia Economic Prospects," the World Bank notes that this year's economic growth in Indonesia is supported by strong private consumption. However, tight global financing conditions have led to capital outflows and currency pressures in many countries, including Indonesia.
There are a number of factors that are currently slowing down national economic growth, such as the weakening trade exchange rate, falling commodity prices, and the slowing global economy which can hamper export demand. (R&D COMPAS)
