Indonesia’s economic growth to strengthen in 2022 and 2023

“The Indonesian economy briskly rebounded from the downturn in the third quarter and ended 2021 with output higher than in pre-pandemic 2019. Growth was broad-based and should strengthen in 2022 as economic activity continues to normalize,” said ADB Country Director for Indonesia Jiro Tominaga. “Private consumption and investment entered 2022 with a strong momentum, and the third COVID-19 wave should have minimal impact on growth. The Russian invasion of Ukraine, however, if prolonged, could significantly affect inflation and the fiscal balance.”

The Asian Development Outlook (ADO) 2022 says Indonesia’s consumer spending and manufacturing activity have been consistently rising due to the pickup in incomes, jobs, and confidence. Investment is benefiting from expanding demand, improvements in the investment and business climate, and a recovery in credit.

Inflation, which averaged 1.6% last year, is forecast to rise to 3.6% in 2022, due to faster economic growth and higher commodity prices, but it will still be within the Bank of Indonesia’s target range. Inflation should ease to 3.0% in 2022 as commodity price increase abate. Higher prices for Indonesia’s commodity exports, however, should offset lower export volumes, keep a balanced current account and produce some revenue gains.

For the medium term, the report recommends that Indonesia harness digitalization to raise productivity and growth, which will help the country achieve its goal to raise its per-capita gross domestic product to the high-income level by 2045. Firms will need help to step up technology transfer, boost innovation research and development, and access a tech-savvy workforce. Key policy recommendations include public investment in digital infrastructure, fiscal incentives, and regulatory reforms./.