Indonesia aims for robust 5.2% economic growth in 2024 driven by consumption and investment amid global challenges

Jakarta, 14 June 2024 – Indonesia is targeting 5.2% economic growth in 2024, potentially driven by consumption and investment, as highlighted in PwC Indonesia's latest Economic Update. The report presents mixed sentiments in both the global and Indonesian economies.

The global economy is projected to decelerate in 2024, with a forecasted 2.9% growth in Gross Domestic Product (GDP) by Purchasing Power Parity (PPP), down from an estimated 3.2% growth in 2023. This downturn is primarily attributed to advanced economies implementing tighter monetary policies and reducing fiscal support. Consequently, a moderate decline is forecasted for these economies in 2024, while emerging and developing economies are expected to show relatively more stable growth.

Indonesia’s economy grew by 5.05% in 2023, despite the global economy weakening. Although 2023’s growth is slightly below the previous year's 5.31%, it remains noteworthy during the period of global economic challenges. Inflation significantly reduced to 2.61%, down from 5.51% the previous year, reflecting the effectiveness of the country's monetary policies.

Julian Smith, PwC Indonesia Investment Director, added, “Indonesia targets a 5.2% economic growth rate in 2024, despite challenges such as declining commodity prices and economic conditions in China, the key trade partner of Indonesia. Domestic consumption, which accounted for 57% of Indonesia's GDP in 2023, is expected to remain as the main contributor in achieving this target especially after factoring in an 8% pay rise for 3.7 million civil servants as well as increased spending for election related activities.”

The electoral victory of Prabowo Subianto in 2024 and his commitment to continuing several of current administration’s policies signal a stable investment climate and reduced political uncertainty,  crucial for enabling Indonesia to achieve its investment target of Rp1,650 trillion in 2024, with at least 50% coming from foreign direct investment (FDI). Priority investments include development of Special Economic Zones, development of the  Batam, Bintan, and Karimun areas, and the capital relocation (Ibu Kota Nusantara) megaproject.

The Government Budget (Anggaran Pendapatan dan Belanja Negara/APBN) for 2024 targets Rp2,802.3 trillion in state revenue and Rp3,325.1 trillion in expenditure, resulting in an expected Rp522.8 trillion deficit. Key areas of expenditure include education, social protection, health, and infrastructure. In 2023, Indonesia recorded a trade surplus of USD 36.91 billion, a 32.22% decrease from the previous year, primarily due to falling global commodity prices. 

Indonesian inflation in 2024 is predicted to be around 2.6%, with challenges including volatility in food and fuel prices, and potential disruptions in global supply chains affecting the prices of imported goods. The USD exchange rate against the Rupiah (IDR) continues to show an upward trend, primarily driven by the hawkish stance of the Fed in maintaining tight monetary policy. This stance has contributed to the depreciation of the Rupiah, which hit its lowest level in the past 3.5 years at Rp16,249/USD in April 2024. In response, Bank Indonesia has set the BI rate at 6.25% to address the slowing global economic market and to anticipate higher Federal Reserve interest rates.

Amid these economic challenges, Indonesia maintains a high employment rate of 69.80%, one of the highest among G20 economies, despite more than half of its workers being in the informal sector. The country has benefited from increased exports of smelted metal products due to downstreaming policies. However, there remains significant potential for further growth by expanding the range of high-tech products and maximising their impact on employment, which could help bolster the economy in the face of external financial pressures.

Julian Smith, PwC Indonesia Investment Director, concluded, “Despite challenges in 2023, Indonesia has demonstrated resilience to global shocks and an ever more diversified economic base are expected to mitigate adverse impacts, potentially providing a solid foundation for sustained growth.”