Wednesday, September 27, 2023

Indonesia's Economy to Expand Faster in 2022,2023: ADB

Jakarta Globe
April 6, 2022 | 7:54 pm
Customers return in droves to Jakarta's Tanah Abang market, the largest textile and garment market in Southeast Asia, on March 28, 2022, as the government eases the pandemic restrictions. (B1 Photo/Joanito de Saojoao)
Customers return in droves to Jakarta's Tanah Abang market, the largest textile and garment market in Southeast Asia, on March 28, 2022, as the government eases the pandemic restrictions. (B1 Photo/Joanito de Saojoao)

Jakarta. The Asian Development Bank, or ADB, has projected Indonesia's economy to expand by 5.0 percent in 2022 and 5.2 percent in 2023 on the back of recovering demand, according to the multilateral lender's latest report published on Wednesday. 

The Asian Development Outlook (ADO) 2022 upgraded the growth estimation from its earlier projection for 2022 of 4.8 percent, acknowledging Indonesia's success in reining in the Covid-19 third wave. Still, the lender said a prolonged war between Russia and Ukraine carried a risk to Indonesia's growth momentum. 

Last year, the largest economy in Southeast Asia grew by 3.7 percent after contracted by 2.1 percent in 2020. 

"The Indonesian economy briskly rebounded from the downturn in the third quarter and ended 2021 with an output higher than in pre-pandemic 2019. Growth was broad-based and should strengthen in 2022 as economic activity continues to normalize," ADB Country Director for Indonesia Jiro Tominaga said.


"Private consumption and investment entered 2022 with strong momentum, and the third Covid-19 wave should have minimal impact on growth. The Russian invasion of Ukraine, however, if prolonged, could significantly affect inflation and the fiscal balance," Tominaga said.

ADB said consumer spending, which accounts for 54 percent of Indonesia's economy, has been rising in line with rejuvenated manufacturing activities that boost income, job opportunities, and confidence. 

"Private consumption should return to its pre-pandemic trend growth of 5 percent in 2022; this conservatively assumes that consumers do not fully make up for lost
spending in 2020 and 2021," ADB wrote in the report.

"Demand will also benefit from tax breaks being extended to June, albeit at less generous rates, for buying cars and houses. The digitalization of services, particularly
in commerce and finance, will support consumption through any further Covid-19 outbreaks."

Indonesia managed to control the Covid-19 third wave, driven by a highly contagious Omicron variant, in February, losing only little momentum in growth with a far lower death toll compared to last year's Delta wave.

Today, the government has eased many Covid-19 restrictions, as more than 77 percent of the country's eligible population has received complete vaccine doses.  

ADB said investment in Indonesia would soon follow suit to keep up with growing demand and benefit from improvement in business conditions thanks to the full implementation of the omnibus law. 

  The Manila-based lender saw a prolonged Russian invasion of Ukraine could further pressure inflation this year. Agricultural commodities Indonesia rely heavily on imports like wheat and soybeans have seen their prices soar in the global market due to the war.   

ADB viewed Indonesia's inflation would rise to 3.6 percent in 2022, from 1.6 percent last year. "Inflation pressure could build further this year on a prolonged war," the lender said. 

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