Oxford Economics projected a robust growth for Indonesia's economy at 6.2% in 2022, supported by private consumption and fixed investment. Consumer spending is expected to be boosted in 2022 and 2023 as pent-up demand is expected to be released in 2022, especially with the increase in vaccinations, which will allow sustained economic reopening. While prospects for economic recovery are strong, several elements of uncertainty and risks continue to cast a shadow on Indonesia's growth forecast.
The Oxford Economics's Senior Economist, Sung Eun Jung, presented the 2021-2022 Indonesian economic outlook during the quarterly discussion with Bappenas (the Ministry of National Development Planning), facilitated by the ARISE+ Indonesia on Friday (19/11).
According to Sung, an uncertain and prolonged Covid-19 pandemic will delay growth rebound and push it back to 2023, and 2022 will see a below-trend growth after the contraction registered in 2020.
Sung added that the 2022 rebound would also slacken if average wages underpinning private consumption does not improve. The prospect of rising inflation could also destabilize the path to recovery.
In terms of macro policies, fiscal and monetary policies will gradually tighten over the medium term. Government spending is expected to increase next year with more tax revenues coming in and this year's economic recovery budget underspent. The government debt will remain below the 60% GDP threshold as long as the authorities stick to the fiscal consolidation path, even with some delays in meeting the target.
This year, the current account balance is expected to turn slightly positive due to a goods trade surplus in Q3 2021 but back into a narrow deficit next year.
At the global level, the recovery is far less synchronized among countries in 2021 and 2022. The key reason is that countries are at very different stages of their vaccination programs.
During the presentation of the global economic outlook, Tom Rogers, Senior Macroeconomist at Oxford Economics, highlighted that several economies, including US, Euro Zone and emerging markets outside Asia were experiencing the fastest inflation rate over a decade, at about 4.5%. In contrast, the inflation in China, emerging markets in Asia was well contained at around 3%. Disparities could mainly be due to differences in consumer behaviour across different economies.
Shortages and backlogs in the global industry chain halted economic growth in the US and Europe, and the disruption may last until the second half of next year.
Service sectors, such as accommodation, transport, storage, and communication, will lead the global economic recovery through 2022.
Fiscal policy will drag the US growth in 2022, at around six per cent of GDP. China also experiences an economic slowdown. Real estate in China, which accounts for around a quarter of GDP, could be a risk factor for China's growth and impact, by implication, a risk factor for the world economy more generally.
The quarterly discussion is a part of capacity building programs to enhance Indonesia's economic modelling and forecasting facilitated by the EU-funded ARISE+ Indonesia. The forecasts supports economic policy analysis conducted by Bappenas.
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