Global Economic Projections and Their Impact on Indonesia: A Current Analysis

Jakarta, INTI - The Plenary Cabinet Session held at the Merdeka Palace, Jakarta, discussed global economic projections and their impact on Indonesia's economy. Coordinating Minister for Economic Affairs, Airlangga Hartarto, highlighted various risks currently affecting the global economic condition. Key factors of concern include geopolitical tensions, geo-economic fragmentation, the weakening Chinese economy, the strengthening of the US Dollar, high interest rates in developed countries, and fiscal tightening by those countries.

Airlangga explained that global uncertainty is driving investors towards safe-haven assets like gold and the US Dollar, resulting in currency depreciation in many countries. "The global economy is still below the long-term trend, with various risks leading to a stronger US Dollar and high interest rates in developed countries, along with fiscal tightening to control inflation," he said in a press statement following the cabinet meeting on Monday (24/06).

Despite global challenges, Indonesia's economy has shown considerable resilience. Assessments from several international rating agencies have given positive ratings on Indonesia's economic resilience. In the first quarter of 2024, Indonesia's economy grew by 5.11% year-on-year (yoy). Additionally, Indonesia's Manufacturing Purchasing Managers' Index (PMI) has been in the expansionary level for 33 consecutive months, while the Consumer Confidence Index (CCI) and the Real Sales Index (RSI) remain high, indicating sustained industrial and consumer activities.

Prices of several commodities have also increased, such as crude palm oil (CPO) by 7.26%, nickel by 4.94%, and copper by 15.18%. Minister Airlangga stated that the strengthening US Dollar could provide an opportunity for Indonesia to enhance its export competitiveness. "Exports with rupiah-based raw materials have higher competitiveness. Therefore, we need to boost such efforts," he added.

Indonesia's competitiveness has also shown significant improvement. According to the IMD World Competitiveness report in 2024, Indonesia rose to 27th place out of 67 countries assessed, up from 34th place in 2023. This improvement is attributed to domestic economic policies, including the implementation of the Job Creation Law.

In the labor market sector, Indonesia ranks second out of 67 countries, thanks to demographic bonuses and the Job Creation Law, which facilitates recruitment processes, resolves labor disputes, and enhances productivity.

In the external sector, Indonesia's trade balance has recorded a surplus for 49 consecutive months. However, the current account deficit and capital outflow in portfolio investments are likely to increase due to global economic pressures, particularly the "higher for longer" interest rate policy in the United States.

President Joko Widodo directed that the restructuring of loans due to the Covid-19 pandemic, initially set to mature in March 2024, be proposed to extend until 2025. "This will reduce the need for banks to provision for losses from KUR loans," explained Minister Airlangga.

To stabilize the Rupiah, Bank Indonesia will issue Rupiah Securities (SRBI) and Foreign Exchange Securities (SVBI), synchronized with the issuance of Government Securities (SBN) by the Ministry of Finance.

From an economic fundamental perspective, Indonesia remains relatively strong compared to other countries. The Central Bank's interest rate is at 6.25%, inflation is at 2.84%, and the current account deficit is at 0.64% of GDP. "This is much better than several countries, including Malaysia and Brazil. Similarly, our fiscal balance and foreign exchange reserves are also better. Looking ahead, the President has asked that what has been done continues with good communication with the team from the elected President," concluded Minister Airlangga.

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