Just as the pace of Indonesia’s economic growth returned to pre-COVID-19 pandemic levels, a slowing global economy has emerged as the biggest threat to sustaining that performance.
GDP growth accelerated 5.31 percent last year, bringing Southeast Asia’s largest economy back to its pre-pandemic trajectory of about 5 percent annual growth. That was also the fastest pace since 2013, data yesterday showed.
The “impressive” pace of growth last year was largely supported by domestic consumption, as Indonesia saw a rebound in mobility and tourism, Indonesian Central Statistics Bureau head Margo Yuwono said in a briefing yesterday.
This was bolstered by exports, as the global commodity rally lifted prices of key shipments such as coal, palm oil, iron and steel, he said.
Although the official forecast is for growth of 4.5 percent to 5.3 percent this year, mounting global risks mean the actual performance could be toward the midpoint, if not lower.
Economists in a Bloomberg survey predict this year’s growth to slow below the psychological 5 percent level to 4.9 percent.
Slowdown in some advanced economies is a key risk. Although the IMF last month raised its forecast for the global economy for the first time in a year, growth in advanced nations is expected to remain weak, damping trade in emerging markets, especially Asia.
Indonesia, the world’s largest exporter of palm oil, saw exports growth tapering in the final months of last year.
That suggests the economy is unlikely to see a repeat of last year’s commodity windfall, which helped lift full-year exports to a record.
“Globally, high prices of Indonesia’s main export commodities supported trade performance last year,” Yuwono said. “However, global commodity prices are already in downward trend, hence will impact growth going forward.”
That is in line with the Indonesian Ministry of Finance’s outlook that weakening global economic activity and higher interest rates could weigh on the nation this year.
The warning signs were apparent in the fourth-quarter figures, with GDP growth at its slowest pace in more than a year.
While exports expanded 15 percent year-on-year, it was softer than the 19.4 percent jump in the July to September period. Consumption growth saw a similar softening to 4.5 percent from 5.4 percent.
Moderating growth means Bank Indonesia, which has increased borrowing costs by 225 basis points since August last year, could be on the verge of its last interest rate increase when it meets later this month.
Bank Indonesia Governor Perry Warjiyo last month indicated that risks from a slowing global economy likely outweigh challenges from inflation, as the central bank slowed the pace of its rate move to a quarter-point.
Headline inflation, which was above the central bank’s 2 percent to 4 percent target for most of last year and likely weighed on consumption, is already showing signs of cooling as gains eased to 5.28 percent last month.
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