Indonesia: Macroeconomic Country Outlook
- GlobalData forecasts Indonesia’s real GDP to grow by 5.2% in 2022
- Indonesia was ranked 55th out of 153 nations in the GlobalData Country Risk Index (GCRI) Q2 2022
- According to GlobalData, the wholesale, retail and hotels sector of the country witnessed the highest growth rate of 8.6% in 2021
In April 2022, Indonesia’s wealth fund signed two agreements with respect to investing in toll roads on the islands of Sumatra and Java, amounting to more than $2.7 billion. The signed agreements and Indonesia’s Investment Authority’s (INA) good governance will create greater trust in infrastructure financing in Southeast Asia’s economy from both domestic and international investors. Indonesia’s working age population (15–64) increased to more than 184.4 million in 2021, from 179.7 million in 2019. Moreover, a stable labor force participation rate (which will remain more or less at 69%) and a relatively young population (median age of 31.5 years) as of 2021 will accentuate this advantage.
Key findings
- Indonesia’s stance on Russia’s invasion of Ukraine: Jakarta adopted a stance of neutrality in the conflict, condemning the action without explicitly condemning the aggressor. The country also declined to join the campaign of international sanctions against Russia. In March 2022, Indonesia voted in support of the UN General Assembly resolution condemning the Russian attack. Indonesia later abstained from the vote to suspend Russia from the UN Human Rights Council. In October 2022, Indonesia announced a plan to include Russian President Vladimir Putin and Ukrainian leader Volodymyr Zelenskyy in November’s G20 summit in Bali amid conflict between Russia and Ukraine.
- The economy is forecast to slow down in 2022: In October 2022, Fitch Ratings affirmed rating at 'BBB’ with stable outlook. According to Statistics Indonesia, the economy expanded by 5.4% on an annual basis in Q2 2022, compared to a growth rate of 5.1% in Q1 2022, as consumption strengthened due to further loosening of COVID-19 curbs, amid rising exports boosted by higher commodity prices. Further, the economy is forecast to grow by 5.2% in 2022, according to GlobalData. The real household consumption expenditure also grew by 2% in 2021 and is forecast to expand by 4.9% in 2022.
- Indonesia was ranked 73rd out of 190 countries in the World Bank’s Doing Business ranking in 2020: According to the World Bank, Ease of Doing Business Report (2020), Indonesia scored 69.6 in terms of ease of doing business, lower than China (77.9) and Malaysia (81.5). In order to start a business in Indonesia, it takes 11 procedures and 10 days as compared to the East Asia and Pacific average of 6.5 procedures and 25.6 days. Out of 190 countries, Indonesia was ranked 33rd in terms of getting electricity and 48th in terms of getting credit.
- Robust ties between Indonesia and Singapore: In September 2022, Indonesia and Singapore announced commencement of work on a cross-border QR payment linkage between both the nations. The initiative will allow QR codes from both countries to be scanned by consumers from either country to facilitate payments. It is part of the ASEAN-wide payments connectivity effort, which is scheduled to be launched in the second half of 2023. The QR payment linkage is expected to empower small medium enterprises (SMEs) to conduct and enhance cross-border trade, e-commerce, and financial activities more efficiently, as well as support tourism growth. Moreover, the objective is to establish regional payments integration by 2025 and support the cross-border trade corridors within the ASEAN region, which also aims to include Malaysia, Thailand, and the Philippines.
- Personal data bill: In September 2022, Indonesia’s parliament approved personal data protection bill into law. The legislation aims to protect consumers and the vast trove of data within the country’s territories. According to the Ministry of Communications and Information, based on the new law, data handlers could be punished up to five years in jail for leaking or misusing private information. Individuals falsifying personal data for their gains could also be jailed for up to six years under the legislation. The law also includes corporate fines that can be as high as 2% of the company’s annual revenue in case of a data leak.
- Budget for 2023: On September 14, 2022, Indonesia's parliamentary budget committee and the government approved IDR3,061.2 trillion ($213.9 billion) budget. The 2023 state budget includes covering the central government’s expenditure at IDR2,230 trillion ($155.9 billion) and transfer to the regions at IDR811.7 trillion ($56.7 billion). The country allocated various amounts, which includes (i) IDR169.8 trillion ($11.9 billion) to continue pandemic response, health system reforms as well as sustainability of the National Health Insurance (ii) IDR479.1 trillion ($33.5 billion) to help the underprivileged and the vulnerable fulfill their basic needs, and in the long run, is expected to alleviate poverty (iii) IDR608.3 trillion ($42.5 billion) for education and (iv) IDR392 trillion ($27.4 billion) for infrastructure development of the country.
Key fundamentals
Sectoral outlook
- Revival for travel and tourism industry: In April 2022, Bali reopened its borders to foreign travelers. In an attempt to revitalize the tourism industry, the Indonesian government launched the “5 new Bali” campaign by providing five travel destinations that are expected to be the next Bali, which include Lake Toba in North Sumatra, Borobudur Temple in Central Java, Mandalika in West Nusa Tenggara, Labuan Bajo in East Nusa Tenggara, and Likupang in North Sulawesi. In September 2022, the Ministry of Tourism of Indonesia organized an event, namely Indonesia Sales Mission and Media Meet in India to boost tourist visit from India to Indonesia. In September 2022, Indonesia and Cambodia announced to enhance tourism cooperation between both the nations. In September 2022, the Indonesian Tourism and Creative Economy Ministry collaborated with the government of Fiji Islands to develop a sustainable tourism sector to improve the economy and open employment opportunities. According to GlobalData, international arrivals to the country was recorded at 4.1 million in 2020 and 1.5 million in 2021. Further, forecast to reach to 10.9 million in 2022 and 13.3 million in 2023.
- Indonesian e-commerce market to grow by 23.8% in 2022: Indonesia e-commerce market is expected to register a robust 23.8% growth in 2022 and reach IDR420.8 trillion ($30 billion) in 2022, forecasts GlobalData. According to GlobalData’s E-Commerce Analytics, e-commerce payments in Indonesia are forecasted to rise further at a compound annual growth rate (CAGR) of 22.0% between 2021 and 2025, to reach IDR753.8 trillion ($53.8 billion) in 2025. E-commerce sales in Indonesia registered sustained growth over last few years supported by rising internet and smartphone penetration, growing middle class population, and proliferation of online merchants and payment tools. Furthermore, the COVID-19 pandemic made online shopping more appealing among consumers due to social distancing and lockdown restrictions. The rise in e-commerce is also supporting the emergence of new payment models such as buy now pay later. The Indonesian buy now pay later market is crowded with several players, including banks and payment service providers offering this service, some of them being Kredivo, Atome, SPayLater, and GoPayLater.
- Indonesia to speed up geothermal development to solve energy issues: With an estimated 24GW in geothermal reserves that account for 40% of the world’s geothermal resources, Indonesia is set to accelerate the geothermal power development to solve its energy issues, says GlobalData. GlobalData’s latest report, “Indonesia Power Market Size, Trends, Regulations, Competitive Landscape and Forecast, 2022-2035,” reveals that Indonesia has identified over 300 sites across islands, including Sumatra, Java, Nusa Tenggara, Sulawesi, and Maluku for geothermal power development. The country has created a fund of around IDR3.7 trillion (around $275 million) for the development of geothermal technology. Managed by PT Sarana Multi Infrastruktur (PT SMI), the fund will be primarily used for lending activities, equity participation or providing data and geothermal information.
GlobalData Country Risk Index (GCRI) – Q2 2022
Indonesia was ranked 55th out of 153 nations in the GCRI Q3 2022. The country’s risk score is in the low-risk nations band (30-40). Indonesia’s overall risk score (39.8) was lower than the world average (44.9), and higher than the Asia-Pacific (29.7). The country secured low risk on the parameters, legal environment (44.5), demographic and social structure effectiveness (37.7) and technology and infrastructure (48.5) compared to the average of World. Its risk score was higher than the Asia-Pacific average in terms of the macroeconomic, political, legal, demographic and technology parameters in Q3 2022.
GCRI Methodology
GlobalData’s unique Country Risk Model determines the existing and future level of country risk by assessing various qualitative and quantitative factors. The index is designed to help firms formulate their global business strategies based on historical developments in an economy.
The Country Risk Index incorporates the latest available macroeconomics, political, social, technological, environmental, and legal data from a range of recognized national and international statistical sources, and also proprietary data from GlobalData. Countries in the Asia-Pacific region in this publication include China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea, Thailand, Vietnam, Taiwan, Australia and New Zealand.
About the report
GlobalData Macroeconomic Outlook report is designed to provide detailed macro-economic analysis which will help clients in their business planning, investment and strategic decisions, and analysis. It also provides a quick view of the current situation and the risk score of the country in comparison to region and world based on the proprietary risk framework. The report also highlights key strengths, weaknesses, opportunities, and threats in each of the pillars of PESTLE, economic growth prospects, and key events which can impact the country’s future outlook.
More details: Macroeconomic Outlook Report: Indonesia
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