Vincent Fabian Thomas, Jakarta – The International Monetary Fund has revised up its outlook on Indonesia's economic growth despite the fund projecting much lower figures for the global economy amid prolonged economic uncertainty and geopolitical strains.
The IMF's latest forecast put Indonesia's GDP growth on a 5 percent path in 2023, according to the fund's World Economic Outlook report in April, 0.2 percentage points higher than the fund's January report.
The figure also puts Indonesia almost on a par with China's growth projection at 5.2 percent this year, which the IMF decided to keep unchanged compared with its January report.
By contrast, the IMF lowered its outlook for the global economy to 2.8 percent, 0.1 percentage point lower than its January forecast.
Faisal Rachman, economist at state-owned lender Bank Mandiri, said the fund's more optimistic outlook for Indonesia was due to the country's solid domestic economy. This would allow the economy to remain resilient in 2023 despite flagging global growth.
"Domestic activities, especially consumer spending, have normalized and even increased, thanks to improving mobility and a declining inflation rate," Faisal said in a statement on Wednesday.
Indonesian inflation dropped below 5 percent for the first time since the government's decision to hike subsidized fuel prices back in September with the figure now sitting at 4.97 percent. Bank Indonesia has projected the figure will drop further to between 2 and 4 percent starting in September this year.
Meanwhile, the IMF's projection on 2023's global inflation has been revised up to 7 percent, from the previous 6 percent, signaling stubbornly high and sticky global inflation.
In line with lower inflation, Indonesia's retail sales, as well as its manufacturing, are reportedly expanding as producers anticipate more demand.
Faisal expects the source of Indonesia's economic growth in 2023 will most likely shift more to the domestic sector, as the country's export activities are expected to weaken along with the global economic slowdown, particularly in the United States and the eurozone.
"Commodity prices are prone to continue weakening, but in a more gradual manner," Faisal said, and this would also reduce Indonesian exports.
Other sources of growth will also come from investment, reflected in gross fixed capital formation (PMTB), which Faisal expects will shift to construction investment from previously being concentrated on commodity-related investment, driven by higher state spending on infrastructure.
Despite the stellar outlook, Faisal expects that Indonesia's GDP growth this year will be lower than last year with the figure sliding to 5.04 percent from the previous 5.31 percent.
The projection is far lower than the government's 5.3 percent target this year, which the Finance Ministry has decided to hold on to despite many analysts forecasting weaker growth.
Irman Faiz, economist at publicly listed Danamon, told The Jakarta Post on Wednesday that he expects China's economic reopening to have positive results for Indonesia, as it is the country's number one trading partner in both imports and exports.
Statistics Indonesia data show that China contributes 24.93 and 29.89 percent of Indonesia's exports and imports, respectively. The figures for other major trading partners like the US and Europe, which have been heavily impacted by the current global turmoil, are far smaller by comparison.
Furthermore, Indonesia's faster than expected fiscal consolidation has also played a significant role in convincing the IMF that the country has a resilient financial condition alongside the country's strong banking industry.