Jakarta, CNBC Indonesia – There is good news for President Jokowi and his ministers. This is related to the release of the Asian Development Bank (ADB) on Wednesday (20/9/2023) regarding economic projections in the country.
ADB estimates that Indonesia’s economy will grow 5% in 2023 and 2024. This September’s outlook revises the previous April report which predicted lower growth for the Indonesian economy, namely growth of 4.8% in 2023. However, in 2024 the predicted economic growth will still remain unchanged, namely 5%.
Low inflation and strong household consumption are the reasons for ADB to revise Indonesia’s economic growth upwards. ADB also sees that Indonesia’s service and tourism sectors are approaching the pre-pandemic era.
The better growth projection this year is of course good news for President Joko Widodo (Jokowi) who is targeting growth of above 5% this year.
ADB estimates that Indonesia’s inflation will reach 3.8% in 2023, lower than the April projection of 4.5%. Next year’s inflation projection was revised to 3.6% from 4.2% in the previous projection.
“Fiscal and monetary policies are appropriate to support the growth cycle. The financial sector is also stable and external risks are under control,” wrote the ADB in its September 2023 Asian Development Outlook (ADO) report.
ADB explained that Indonesia’s current account is running low, but foreign exchange reserves and the exchange rate are projected to remain stable.
“Consumption growth in driving growth turned out to be greater than we previously estimated. Religious holidays and worker bonuses boosted growth,” added the ADB.
Despite the upward revision, the ADB warned that Indonesia faces risks from a weakening Chinese economy. Indonesia’s large dependence on the Chinese economy makes Indonesia vulnerable to economic weakness.
“Weakening demand for commodities means exports will decrease. Weakening manufacturing will also suppress economic growth this year and 2024,” said the ADB.
ADB Revises Regional Growth
Foto: A woman works on a production line manufacturing paper tableware at a factory in Hangzhou, Zhejiang province, China January 21, 2019. REUTERS/Stringer ATTENTION EDITORS – THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT.
The region’s developing economy is expected to grow by 4.7% this year, a slight downward revision from the previous projection of 4.8%, according to the Asian Development Outlook (ADO) September 2023. Meanwhile, next year’s growth forecast is maintained at 4.8% .
Growth in the region was good in the first half of the year, driven by healthy domestic demand and China’s reopening, even as a weaker global outlook dampened export demand.
However, improving tourism, a resilient services sector, healthy money transfers to the region and improving financial conditions are all helping to support economic activity, and inflation is receding in most countries after peaking last year.
On the other hand, weakness in China’s property sector cannot be ignored and will still weigh on regional prospects. High global interest rates have increased the risk of financial instability.
Sporadic supply disruptions due to Russia’s continued invasion of Ukraine, export restrictions, and increased risks of drought and floods caused by El Niño could once again trigger food price increases and challenge food security.
Inflation in developing countries in Asia-Pacific is estimated at 3.6% this year, down from the previous projection of 4.2%. This is largely due to low inflation in China, as well as stable food and energy prices. Inflation forecast for next year is 3.5%.
Among developing sub-regions in Asia, Southeast Asia’s growth forecast fell to 4.6% this year from the previous projection of 4.7%, due to weaker export demand. The forecast for South Asia was also lowered by 0.1 percentage point to 5.4% although the subregion remains the fastest growing subregion, thanks to strong investment and consumption.
The outlook for East Asia was cut to 4.4% from 4.6%, and China is now expected to grow by 4.9% this year, from 5.0% in April. Growth forecasts have been upgraded for Central Asia and the Pacific.
ADB projections for Southeast Asia
Growth in Southeast Asia was revised down slightly to 4.6% in 2023 and 4.8% in 2024 due to weakening global demand for the sub-region’s manufactured export products.
Falling energy prices and weakening demand will continue to reduce pressure on Southeast Asian prices. Inflation in the sub-region in 2023 is estimated to still slow from last year at 5.1%. lower energy prices.
Although inflation slowed in the first half of the year, food prices are not expected to continue to moderate in the second half due to upward pressure on rice prices following India’s export restrictions in July and El Niño’s expected impact on the upcoming harvest in the subregion. Core inflation has reached its peak and is expected to increase gradually.
The headline inflation forecast in the sub-region was revised down to 4.2% from 4.4% in April and maintained at 3.3% in 2024, with headline inflation moving towards the pre-pandemic average of 2.5%.
The sharpest downward revision in the sub-region was for Vietnam, with inflation forecast at 3.8%. this year from an estimated 4.5% in April, and Indonesia, at 3.6% from 4.2% in April.
“Weakening demand for commodities means exports will decrease. Weakening manufacturing will also suppress economic growth this year and 2024,” wrote the ADB in its September 2023 Asian Development Outlook (ADO) report.
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