MACROECONOMIC ANALYSIS SERIES: Indonesia Economic Outlook 2023

Indonesia’s economy kept growing beyond expectations throughout 2022. In Q22022, the GDP figure grew substantially above consensus at 5.44% (y.o.y), making it the second-highest growth rate of Indonesia’s economy since 2013 and being only lower to the growth rate of 7.07% (y.o.y) in Q2-2021. Several factors come into play in driving this high rate of growth in the second quarter of 2022. First, the momentum of domestic demand recovery is still prolonged due to lagging health recovery compared to other countries; thus, the low-base effect still prevails. Second, the seasonal event of Ramadhan and Eid Al-Fitr boosted consumption activity during Q2-2022. Contributed to 53% of GDP, household consumption grew by 5.51% (y.o.y) in Q2-2022, jumped from 4.34% (y.o.y) in the previous quarter. Third, the spike in commodity prices due to escalating geopolitical tension and global economic recovery has benefitted Indonesia as a net exporter of primary energy commodities, such as coal and CPO, in the form of export performance and tax revenues. Export grew by 19.74% (y.o.y) and taxes minus subsidies increased by 39.42% (y.o.y), the highest growth rate of net tax revenue since 2015. Lastly, the decision of GoI to increase fuel subsidies and delay the fuel price hike in Q2-2022 amidst skyrocketing oil prices helped maintain a relatively low inflation level and purchasing power. Inflation during April-June period ‘only’ averaged at 3.79% and peaked in June with the inflation rate of 4.35% (y.o.y), well below the October inflation rate of 5.71% (y.o.y) and its peak during 2022 of 5.95% (y.o.y) in last September.

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