Indonesia's economy is recovering, mainly driven by private consumption, net exports, and the manufacturing sector revival. The economic growth is expected to reach 4.7% in 2021 and 6.5% in 2022, according to a UK-based forecasting firm, Oxford Economics.
Sung Eun Jung, an economist for Indonesia at Oxford Economics, presented the outlook during the quarterly meeting with Bappenas (the Ministry of National Development Planning) via Zoom facilitated by the ARISE+ Indonesia, May 21, 2021.
According to Sung, private consumption and fixed investment increased in Q1 2021 despite the re-tightening of restrictions in January 2021. This condition outperformed the initial expectation that predicted a decrease in private consumption.
"This is a good sign in terms of domestic demand recovery. We think that the domestic demand will be the main driver of growth in 2021-2022," Sung said.
Although the growth rebound has been stronger than expected, Sung projected that a sustained recovery could be challenging until a significant portion of the population is vaccinated. The growth rate for 2021-2022 remains below the historical trends but expected to return to normal in 2023.
The twin deficit risks persist. The fiscal deficit forecast for 2022 is 4.6% and 3.6% for 2023. Meanwhile, the current account deficit is expected at 1.7% this year and widening to 2.3% in 2022.
Indonesia's potential output and its components remain robust in the next decade. However, investment is the key to support long-term growth. Sung said, if the investment doesn't get realized, it will pull down the growth outlook for Indonesia quite significantly.
Sung also added that another most damaging downside to GDP growth is the vaccine effectiveness, especially against new variants of the Covid-19 virus.
The presentation was followed by a lively discussion with around 20 economists from Bappenas. Similar meetings are scheduled to take place every quarter as part of a capacity building programme for Bappenas in economic analysis and forecasting, through the EU-funded ARISE+ Indonesia Trade Support Facility which is implemented under the aegis of Bappenas.
Firman Hidayat, the Coordinator for Macro-Economic Planning of Bappenas, said that the discussion with Oxford Economics broadened the perspective and enriched the insights of fellow economists for preparing economic forecasts and analysis.
"On the overall, it will improve the quality of our macroeconomic framework planning process and outcomes," Firman said.