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Indonesia Favourable commodity prices and still buoyant capital inflows are helping Indonesia to resist strong global headwinds. However, domestic demand and private consumption growth is being held back by high headline inflation. With foreign investors recognizing the progress made towards macroeconomic stability and enhanced structural reforms, and expanding their reach in Indonesia, GDP growth is projected to average around 5% in 2022 and 2023 and strengthen slightly in 2024. Persistent tensions on energy, fertiliser and food markets and social unrest ahead of the February 2024 presidential elections are the main downside risks. Fiscal and monetary policies should remain tight, while support for vulnerable households should be maintained. In the medium run, the overarching imperative remains to spur productivity growth through appropriate human capital policies, the removal of obstacles to business activity and the restructuring of state-owned enterprises (SOEs). It is also important to reinforce the independence and professionalism of the Indonesia Investment Authority, the recently-established sovereign wealth fund. On the upside, the impact on potential output of reforms enacted in recent years to liberalise labour markets may turn out to be larger than expected. Recent developments provide mixed signals Growth accelerated in the first three quarters of the year: domestic demand was buoyant as mobility restrictions to curb COVID-19 cases were withdrawn and external trade was supported by the rise in global prices for commodities such as coal, palm oil, and nickel (a critical component in electric vehicle batteries). In US dollars, exports over the year to September 2022 were 36% higher than in the previous year. A recovery in tourism is underway (boosted by the broadening of visa-on-arrival procedures), although the number of visitors remains below pre-pandemic levels.
Indonesia 1
Source: CEIC; and OECD Economic Outlook 112 database. StatLink 2 https://stat.link/1xwtqz
OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 2: PRELIMINARY VERSION © OECD 2022