Indonesia: Maintaining Economic Growth Amid Global Challenges

Jakarta, INTI - As we enter the mid-year of 2024, the global economy continues to face various challenges that trigger economic slowdowns in several countries. International organizations such as the World Bank and IMF forecast global economic growth at the end of 2024 to be in the range of 2.6% - 3.2% (year-on-year), while for 2025, it is projected to reach 2.7% - 3.3% (year-on-year).

Amid uncertain global conditions, Indonesia's economy demonstrates solid performance, with the second-quarter economic growth of 2024 reaching 5.05% (year-on-year). This growth rate is supported by low and controlled inflation, recorded at 2.13% in July 2024. This achievement is higher than in several other countries, such as China (4.7%), Singapore (2.9%), South Korea (2.3%), and Mexico (2.24%).

According to the Coordinating Minister for Economic Affairs, Airlangga Hartarto, Indonesia can achieve economic growth projections of between 5.1 and 5.2, demonstrating resilience against geopolitical conflicts, supply chain disruptions, and exchange rate fluctuations. "Specifically for Indonesia, these international institutions see that Indonesia can achieve growth of 5.1 to 5.2. This proves that our economic growth projections are relatively resilient," Airlangga said in a press conference on Indonesia's Economic Growth for the Second Quarter of 2024 at the Coordinating Ministry for Economic Affairs, Monday (5/08).

Components of Economic Growth

On the expenditure side, second-quarter 2024 growth was driven by household consumption, which grew by 4.93% (year-on-year), and Gross Fixed Capital Formation (GFCF) at 4.43% (year-on-year), which are the main contributors to Gross Domestic Product (GDP). The highest growth was recorded by the consumption of Non-Profit Institutions Serving Households (NPISH) at 9.98% (year-on-year).

This expenditure success is attributed to various government policies, such as the Value Added Tax Incentive Borne by the Government (PPN DTP) for the housing and motor vehicle sectors, particularly electric vehicles. Additionally, the government optimized the implementation of cheap market operations, the Cheap Food Movement (GPM) program, the distribution of medium rice through the SPHP program, and the construction of 41 National Strategic Projects (PSN) targeted for completion in 2024.

Growth of Business Sectors

On the business side, the manufacturing sector remains the primary contributor to GDP, growing by 3.95% (year-on-year). Meanwhile, the highest growth was achieved by the accommodation and food and beverage sector, which grew by 10.17% (year-on-year), driven by various national and international events. The transportation and trade sectors also recorded high growth of 9.56% (year-on-year), fueled by increased mobility, export-import shipments, and rising tourist visits.

Regional Contribution to GDP

Spatially, all regions in Indonesia experienced economic strengthening, with Java Island contributing the most to national GDP, reaching 57.04%. Significant economic growth was also seen in regions like Maluku Papua (8.45%), driven by the processing industry, mining, and quarrying; Bali and Nusa Tenggara (6.84%), driven by agriculture, fisheries, and forestry; and Sulawesi (6.07%), driven by agriculture, fisheries, forestry, and the processing industry.

In this context, Airlangga noted several consumption indicators showing positive trends. An increase was seen in consumer credit, which grew by 10.4%, core inflation remained controlled at 1.9% (year-on-year) in May 2024, and the Consumer Confidence Index (CCI) reached 123.3 in the same month. Market liquidity (M2) also increased by 7.8%.

External Challenges and Policies

In the external sector, although global exchange rates experienced depreciation throughout 2024, Indonesia's exchange rate changes from January to August 2024 remained better than South Korea and Taiwan. Amid various global challenges, Indonesia's external resilience remains strong, as reflected in the trade balance surplus, increased tourist visits, and high foreign exchange reserves.

In terms of investment, there was Foreign Direct Investment (FDI) of IDR 217 trillion and Domestic Investment (DI) of IDR 211 trillion. Several rating agencies such as S&P, Moody’s, Fitch, and JCR assess Indonesia is still at the investment grade level with solid economic growth prospects, good external resilience, and manageable government debt, supported by credible monetary and fiscal policies.

Future Steps

To ensure stability and economic resilience in the future, the government has prepared several policies, including downstream processing, infrastructure development, continuing OECD accession, Indo-Pacific Economic Framework (IPEF), development of food center areas, and encouraging digitalization, including semiconductor development.

"We certainly maintain programs related to social protection, micro-financing, and KUR. Then, nutritious lunch development for the rehabilitation of Inpres Elementary Schools, food barn development through food estates," concluded Airlangga.

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