Indonesia’s Economic Growth Projected at 5% in 2024: Challenges and Opportunities
By Vindry Florentin for Tempo.co | November 15, 2024
Indonesia’s Finance Minister Sri Mulyani Indrawati has projected Indonesia’s economic growth to remain around 5% for 2024, a figure she considers an achievement given the global and domestic challenges throughout the year.
“Despite being impacted by significant interest rate hikes since 2022, our economy is holding steady at around 5%,” Sri Mulyani said during a hearing at Indonesia’s legislature with House of Representative Commission IX in Jakarta on November 13.
Drivers of Economic Growth
Indonesia’s economy grew by 4.95% in the third quarter of 2024, according to data from Statistics Indonesia (BPS). Household consumption, which accounts for 53% of the gross domestic product (GDP), remained resilient, growing by 4.91% year-on-year during the quarter.
Minister Sri Mulyani noted that household consumption has been relatively stable since the pandemic. In the third quarter of 2022, it grew 4.9%, compared to 4.8% during the same period in 2023. She emphasized that this stability continues to underpin the nation’s growth trajectory.
Private sector investment has also shown robust performance, with foreign and domestic investment rising 18.5% and 11.6%, respectively, year-on-year. Export activities have benefited from industrial downstreaming initiatives and the recovery in tourism, as international visitor arrivals show positive trends.
Global institutions, including the International Monetary Fund (IMF) and the World Bank, have echoed the government’s projection, estimating Indonesia’s economic growth at 5% for 2024.
Concerns Over Slowing Consumption
Despite these positive indicators, experts have highlighted challenges that could hinder stronger growth. Piter Abdullah, Executive Director of the Segara Institute, warned that weakening household purchasing power may keep growth below expectations.
For example, household consumption grew 5.05% in the third quarter of 2023 but slowed to 4.9% in the first quarter of 2024, despite typically high spending during the general election and the Idul Fitri holiday season.
The new government of President Prabowo Subianto inaugurated on October 20, has faced hurdles in swiftly capitalizing on economic opportunities. Their expanded cabinet, comprising 48 ministries—up from the previous government’s 34—has slowed decision-making and policy implementation.
“Some ministries are still finalizing budgets, hiring staff, or even establishing office spaces,” Piter noted. “This lack of consolidation could delay the government’s ability to stimulate growth, especially during the crucial year-end period.”
Year-End Momentum and Policy Considerations
The final months of 2024 bring opportunities to boost economic performance, including the nation-wide simultaneous provincial, regional and municipal elections on November 27, holiday spending for Christmas and New Year’s, and increased government spending as the fiscal year closes.
Nailul Huda, Director at the Center of Economic and Law Studies, argued that these events could lift growth to 5.00–5.05%, provided inflation remains under control. Stable prices, he emphasized, are essential to sustaining purchasing power during this critical period.
At the same time, Mohammad Faisal, Executive Director at the Center of Reform on Economics, underscored the importance of consumer spending in maintaining growth. While household consumption remains a key driver, its slowing pace this year raises concerns. Bank Indonesia data show that third-party funds in the banking sector grew at a declining rate, from 8.45% in June to 7.01% in August 2024.
Faisal urged policymakers to avoid counterproductive fiscal measures that could burden households further. “The focus should remain on strengthening purchasing power,” he said.
Government Measures to Support Growth
Deputy Coordinating Minister for Macroeconomic and Financial Policy, Ferry Irawan, stated that the government is actively working to bolster household consumption and stimulate strategic sectors.
Initiatives include expanded social protection programs, tax incentives for housing and automotive sectors, and increased access to financing for small and medium-sized enterprises. The government is also accelerating state budget disbursements to drive growth in key areas.
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Inflation Target
“We are committed to keeping inflation within the target range of 2.5% ± 1% to ensure economic stability,” Ferry said.
Looking Ahead
While Indonesia’s economic resilience has been evident in 2024, sustaining growth will depend on the government’s ability to address structural challenges and capitalize on year-end momentum. Analysts caution that without swift and coordinated action, the nation risks falling short of its growth target.
Indonesia’s Minister of Finance Sri Mulyani Indrawati (center) with Deputy Ministers of Finance Anggito Abimanyu (left), Suahasil Nazara (second left), Thomas A. M. Djiwandono (second right), and Secretary General Heru Pambudi (right), delivering a presentation at a working meeting with House of Representatives Commission XI at the House of Representatives complex, Senayan, Jakarta, November 13, 2024. ANTARA/Dhemas Reviyanto
This article is based on https://www.tempo.co/ekonomi/pertumbuhan-ekonomi-5-persen-1168622 and is not authorized.
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