Publication: Indonesia Economic Prospects, June 2022: Financial Deepening for Stronger Growth and Sustainable Recovery
Loading...
Other Files
3,722 downloads
Published
2022-05-31
ISSN
Date
2022-06-22
Author(s)
Editor(s)
Abstract
Indonesia’s economic recovery from the Corornavirus (COVID-19) pandemic comes amidst an increasingly challenging global environment. Indonesia’s growth accelerated at the end of 2021 as the country stepped off from a devastating Delta wave in July-August, ending the year with 3.7 percent growth. The momentum carried into the first quarter of 2022 with the economy growing at 5 percent (yoy) and absorbing a short and sharp increase in Omicron-related COVID cases. Growth drivers since end 2021 have rebalanced gradually from exports and public consumption towards private consumption and investment. Since February, the war in Ukraine has disrupted the global economic environment with rising commodity prices and de-risking in global financial markets. The positive terms-of-trade effect has benefited Indonesia in the near-term through higher export and fiscal earnings. But the country is starting to feel the pressures of rising prices and tightening external finance.
Link to Data Set
Citation
“World Bank. 2022. Indonesia Economic Prospects, June 2022: Financial Deepening for Stronger Growth and Sustainable Recovery. © World Bank. http://hdl.handle.net/10986/37584 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Global Economic Prospects, June 2022(Washington, DC: World Bank, 2022-06)The world economy continues to suffer from a series of destabilizing shocks. After more than two years of pandemic, the Russian Federation’s invasion of Ukraine and its global effects on commodity markets, supply chains, inflation, and financial conditions have steepened the slowdown in global growth. In particular, the war in Ukraine is leading to soaring prices and volatility in energy markets, with improvements in activity in energy exporters more than offset by headwinds to activity in most other economies. The invasion of Ukraine has also led to a significant increase in agricultural commodity prices, which is exacerbating food insecurity and extreme poverty in many emerging market and developing economies. Numerous risks could further derail what is now a precarious recovery. Among them is, in particular, the possibility of stubbornly high global inflation accompanied by tepid growth, reminiscent of the stagflation of the 1970s. This could eventually result in a sharp tightening of monetary policy in advanced economies to rein in inflation, lead to surging borrowing costs, and possibly culminate in financial stress in some emerging market and developing economies. A forceful and wide-ranging policy response is required by policy makers in these economies and the global community to boost growth, bolster macroeconomic frameworks, reduce financial vulnerabilities, provide support to vulnerable population groups, and attenuate the long-term impacts of the global shocks of recent years.Publication Global Economic Prospects, June 2011(2011-06)The global financial crisis is no longer the major force dictating the pace of economic activity in developing countries. The majorities of developing countries has, or are close to having regained full-capacity activity levels. As a result, country-specific productivity and sartorial factors are now the dominant factors underpinning growth. Macroeconomic policy in developing countries needs to turn toward medium-term productivity enhancements, managing inflationary pressures re-establishing the fiscal and monetary cushions that allowed most developing countries to come through the crisis so well. In contrast, activity in high income and some developing European countries continues to struggle with crisis-related problems, including banking-sector, fiscal and household restructuring. The remainder of this report is organized as follows. The next section discusses recent developments in global production, trade, inflation, and financial markets, and presents updates of the World Bank's forecast for the global economy and developing countries. This is followed by a more detailed discussion of some of the risks and tensions in the current environment, and a short section of concluding remarks. Several annexes address regional and sartorial issues in much greater detail.Publication Global Economic Prospects, June 2012(Washington, DC, 2012-06)The year began on a positive note. A marked improvement in market sentiment, combined with monetary policy easing in developing countries, was reflected in a rebound in economic activity in both developing and advanced countries. Industrial production, trade and capital goods sales all returned to positive territory, following the slow growth of the fourth quarter of 2011. Although debt levels in developing countries are lower, several countries (notably Jordan, India, and Pakistan) must reduce their structural fiscal balances to reduce debt to 40 percent of Gross domestic Product (GDP) by 2020 (or prevent debt-to-GDP ratios from rising further). As a result, sharp swings in investor sentiment and financial conditions will continue to complicate the conduct of macroeconomic policy in developing countries. In these conditions, policy in developing countries needs to be less reactive to short-term changes in external conditions, and more responsive to medium-term domestic considerations. A return to more neutral macroeconomic policies would also help developing countries reduce their vulnerabilities to external shocks, by rebuilding fiscal space, reducing short-term debt exposures and recreating the kinds of buffers that allowed them to react so resiliently to the 2008/09 crisis.Publication Indonesia Economic Quarterly, June 2011(Washington, DC, 2011-06)Indonesia's economic performance through mid-2011 has been positive. Solid growth has been accompanied by further portfolio capital and foreign direct investment inflows. Public and financial sector balance sheets remain strong. However, events over the past quarter serve as a reminder of a number of Indonesia's ongoing policy challenges. At the same time, the launch of the government's master plan 2011-2025 has focused attention on the investments and policy reforms which can help Indonesia reach its future growth potential. Finally, heightened international risk aversion originating from the Greek debt crisis, and the potential market implications of any haircut, were it to occur, are a reminder of the external shocks which could prompt reversals of short-term capital flows to Indonesia. However, events over the past quarter are a reminder of the current challenges which are faced and the need to put in place, and implement, the policies and investments necessary for Indonesia to reach its potential as a leading global growth driver of the next few decades.Publication Malaysia Economic Monitor, June 2013(Washington, DC, 2013-06)Following a strong performance in 2012, Malaysia's economy hit a soft patch in the first quarter of 2013. Economic growth has been supported by the strong, broad-based performance of domestic consumption and investment from public and private sources. The acceleration of investment growth has been a key feature of the recent growth trend. Public and private consumption has also underpinned growth. Accommodative fiscal and monetary policies have supported both higher (real) household incomes and sustained credit growth, which along with firm labor markets provided a solid backdrop for consumption growth even as agricultural commodity prices declined. Despite significant expenditure overruns, the government met its fiscal deficit target for 2012. Supply-side factors kept inflation subdued amidst robust domestic demand. Monetary authorities emphasized macro-prudential regulation as the policy interest rate continued to be pulled in two directions. Malaysia is likely to continue posting solid growth rates in 2013 and 2014. Growth in 2013 is projected to come at 5.1 percent, supported by the strong momentum in investment growth, still-accommodative fiscal and monetary policies, higher household income due to tight labor markets, and modest improvement in the export sector. The sustainability of Malaysia's favorable near-term prospects into 2015 and beyond continues to hinge on the implementation of structural reforms. Having a rigorous investigation of the effectiveness of various tax incentives across different industries, and comparing the benefits with the costs in foregone revenues, will provide important lessons, to Malaysia and other countries, of the appropriate role for fiscal incentives in horizontal diversification.
Users also downloaded
Showing related downloaded files
Publication Indonesia Economic Prospects, June 2021(World Bank, Washington, DC, 2021-06-16)COVID-19 (coronavirus) has taken a heavy economic and human toll globally and in Indonesia. According to official statistics, over 3.8 million people have died from COVID as of May 2021. The global economy experienced one of the most severe recessions, shrinking by 3.5 percent in 2020 compared to 1.7 percent in 2009 during the global financial crisis. The recession in Indonesia (-2.1 percent) was milder than among Emerging Markets and Developing Economies, EMDEs (-4.3 percent excluding China). Small and medium-sized firms and businesses in contact-intensive services sectors were severely affected. About 1.8 million Indonesians became unemployed between February 2020 and 2021 and another 3.2 million people exited the labour force. Three hundred thousand fewer youth entered the labour market. About 2.8 million people have fallen into poverty as of September 2020 with the government’s social assistance program mitigating a potentially worse outcome. Indonesia's recovery has been relatively gradual until the first quarter of 2021 but has accelerated more recently. Indonesia’s recovery gap – the difference between real GDP and its pre-crisis trend – narrowed from -7.5 to -7.1 percent between Q2 and Q4 2020. By comparison, the average 'recovery gap' among regional and G20 peers shrank from -13.6 to -5.1 percent. The recovery gap remained elevated at -7.9 percent during the first quarter this year. Consumption and investment growth have been subdued due to the still weak labor market and high uncertainty while trade has recovered more strongly. The recovery gap in contact-intensive services sectors, such as transport and accommodation, has also been elevated compared to manufacturing industries due to social distancing and stronger external demand in manufacturing. But retail sales increased by 11 percent between March and April while the manufacturing continued to expand suggesting a stronger rebound during the second quarter.Publication Indonesia Economic Prospects, June 2023(Washington, DC: World Bank, 2023-06-26)Commodity windfalls and private consumption have sustained Indonesia’s growth despite a difficult global environment, but signs of normalizing domestic demand are emerging. Inflation is easing at a faster pace than markets anticipated. Indonesia’s external vulnerabilities remain moderate. The fiscal stance has normalized reflecting faster fiscal consolidation, anchored by a broad-based rise in revenues and prudent public spending. Softening inflation and resilient capital flows have led Bank Indonesia (BI) to ease its pace of monetary tightening. The outlook remains stable as the economy normalizes following the post-pandemic recovery. While this is a robust outcome given levels of global uncertainty, Indonesia still faces declining productivity growth like other emerging market economies. Policy makers are encouraged to build on recent reforms and adopt further market-friendly policies and reduce constraints to competition to accelerate productivity growth. The Government of Indonesia (GoI) has put tremendous efforts into mitigating the learning disruption caused by COVID-19. This study provides new evidence of learning loss in math and language, comparing data on grade 4 student learning before and after the COVID-19 pandemic-induced school closures across Indonesia. In line with international literature on COVID-19 - induced learning losses, students’ future earnings and Indonesia’s future productivity will be negatively affected if no action is taken. This study highlights the urgency of addressing learning loss by stimulating political commitment for learning recovery and prompting deliberate actions, with adequate resources to complete them.Publication Indonesia Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-23)Indonesia’s economy remains resilient amid worsening global conditions. GDP grew at 4.9 percent year-on-year (yoy) in Q1-2025, slightly lower than previous post-pandemic quarters. Domestic demand was impacted by reduced government consumption and lower investment. Budget efficiency measures led to a contraction in public consumption, while investment in the construction and manufacturing sectors dipped due to investors’ concerns over domestic and global policy uncertainty. Meanwhile, declining commodity prices worsened Indonesia’s terms of trade. The supply side showed notable contributions from the agriculture and services sectors. Businesses and households are adjusting to economic uncertainty, but weak consumption of middle-class households has been persistent since the pandemic. The GOI structural reform agenda could accelerate growth further. In response to rising global policy uncertainty, the GOI devised a program of deregulation including reforms to the business environment and licensing, investment liberalization, trade and logistics reforms, and digital services. These reforms complement other reforms currently in play, like those related to financial sector deepening, and accompany the demand stimulus that the GOI is targeting through its priority programs. If implemented, these reforms could gradually expand the economy’s capacity, unlock further FDI, boost investment returns, and ensure productivity gains. The report suggests that this will translate into better job creation and raise GDP growth to 5.3-5.5 percent in 2026-2027. This report identifies the necessary steps to reach the target of providing 3 million housing units each year. In short, to meet the housing target and supercharge current efforts, the government needs to act as both a housing provider and a housing facilitator: instituting housing regulation reforms, accelerating public-funded housing programs, and creating an enabling environment that attracts private investment in Indonesia. Directly, 3.8 billion dollars in annual public investments can create an estimated 2.3 million jobs and mobilize 2.8 billion dollars in private capital. Reforms can create an enabling environment for housing investments and indirectly help multiply this impact.Publication Indonesia Economic Prospects, December 2023(World Bank, Washington, DC, 2023-12-13)Indonesia has been successful in navigating the macroeconomic fallout from asynchronous global shocks. Gross domestic product (GDP) growth remains strong though the economy is yet to fully recover to its pre-pandemic trajectory. This is consistent with labor market trends, which show a recovery in labor force participation and employment but a possible deterioration in jobs quality. Inflation has been brought under control following the effects of the energy price shocks in 2022, though new pressures are emerging from food supply risks and renewed oil price rises. External pressures have risen due to tight global financing conditions, which have triggered capital outflows and currency pressures across emerging markets including Indonesia. With resilient macroeconomic underpinnings and the end of the post-COVID recovery cycle, the policy focus turns again to the growth agenda.Publication Indonesia Economic Prospects : Trade for Growth and Economic Transformation(Washington, DC: World Bank, 2022-12)The Russia-Ukraine war has disrupted global trade and supply chains, exacerbating the rise in global commodity and food prices. Persistently high global inflation accompanied by tepid growth brings fears of stagflation that could endure for several years. Amidst this environment, the US Federal Reserve and other advanced economy central banks sharply tightened monetary policy to curb inflation. This has translated into tighter external financing conditions and financial stress for some emerging markets and developing economies (EMDEs) as capital outflows have intensified. Despite global slowdown, Indonesia has experienced strong growth in 2022 thanks to commodity windfalls and a reopening of the economy. Indonesia’s external vulnerability has been low to moderate as strong exports have supported the external balance although tighter global finances have put some pressure on the capital account. Indonesia is projected to have a robust growth over the next three years though with significant downside risks emanating from the global economic environment. To address current macrofiscal policy challenges, the report highlights three policy and institutional areas that may warrant attention going forward. The first is about continuing with the implementation of tax reforms to broaden the tax base and improve compliance of business tax collection. The second is related to public spending where the authorities could over time move towards a rules-based pricing model for energy to contain subsidy pressures. The third is improving targeting and expanding coverage of existing social assistance and social insurance programs. This means filling coverage gaps, developing a system that provides a guaranteed minimum protection across the lifecycle, and strengthening delivery systems.