Growth spurt: Farmers planting rice near Banda Aceh, Indonesia. Private consumption contributed 54% to the country’s GDP last year. — AFP
JAKARTA: Indonesia’s gross domestic product (GDP) growth has exceeded expectations on the back of stronger household spending and investment, but there are signs of weakness in exports amid lower global prices for key Indonesian commodities.
Indonesia’s economic growth was “still solid”, considering the “abnormal situation full of uncertainty” in the world, Coordinating Economic Minister Airlangga Hartarto commented on the 2024 GDP data in a press briefing on Wednesday.
The minister pointed to geopolitical tension, high interest rates and a slowdown in China as global economic challenges.
In a press conference earlier in the day, Statistics Indonesia interim head Amalia Adininggar Widyasanti revealed that Indonesia’s economy grew by 5.03% last year, topping forecasts ranging between 5% flat and 5.02%.
It fell short, however, of a government target of 5.2% proclaimed last year by the administration of then-president Joko “Jokowi” Widodo.
Economic activity last year was buoyed by accelerated growth of investment and household expenditures, the latter of which alone has long accounted for more than 50% of the country’s GDP.
After shrinking to 53% of the entire GDP pie in 2023, household expenditures, also referred to as private consumption, bounced back to 54% last year after growing by 4.94%.
Gross fixed capital formation, which reflects investment trends at large, rose 4.61% year-on-year (y-o-y).
Domestic and foreign investors 1.7 quadrillion rupiah or about US$104bil into South-East Asia’s largest economy last year, marking strong investment growth of 20.8%.
Stronger investment and consumption notwithstanding, the archipelago recorded slower GDP growth than the 5.05% seen in 2023, largely because of shrinking net exports, or the value of total exports minus imports.
“One component that held back economic growth is net exports,” said Amalia.
While the archipelago still exported more than it imported in 2024, the gap narrowed when compared with 2023.
Indonesia has maintained a positive trade balance since May 2020 as exports exceeded imports every single month, but the surplus has been on a downward trend since peaking during the 2022 commodity price boom.
Airlangga pointed out that Indonesia’s export slowdown was due to a drop in global commodity prices rather than to declining shipment volumes.
Key Indonesian export goods are coal, especially thermal coal used in power generation, iron and steel as well as crude palm oil (CPO) and CPO derivatives.
Together, those commodities make up close to 40% of the country’s total exports. Exports of CPO and its derivatives fell by 11.7% in value and 17% in volume last year compared with 2023.
Coal saw a double-digit drop in export value despite a 26 million tonne increase in volume.
Iron and steel saw a 3% drop in value but grew by 18% in volume.
Airlangga said that the government “will look for additional export” commodities that it could push into global markets to boost this year’s GDP growth and was also banking on other sectors to offset the weakness in some commodity exports.
Tourism was one of the “low-hanging fruit” the government would try to pursue as an alternative source of foreign exchange revenue.
“We will keep trying to even out tourism across the country so as not to always rely on Bali, because Bali has begun to become congested,” said Airlangga.
University of Indonesia Institute for Economic and Social Research economist Teuku Riefky wrote in an analysis on Tuesday that the growth trends “paint a bleak picture and suggest a worrying structural problem of the Indonesian economy currently being incapable of reaching a 5% growth level without any seasonal driver”.
He said external pressures would only grow this year thanks to increasing costs of imported goods brought about by trade wars as well as risks of capital outflow from developing countries due to rising global uncertainty and geopolitical tension.
“We have not seen any concrete plan by the new administration to address the productivity issue, and Indonesia might have to continue to rely on seasonal factors to drive its economic growth,” said Riefky.
Bank Permata chief economist Josua Pardede pointed out that the growth of 5.02% in the fourth quarter of last year was primarily driven by a seasonal boost from the Christmas and New Year holidays.
Nevertheless, Josua predicted on Wednesday that this year’s growth would “remain resilient” at 5.11% on the back of stronger consumer spending and increasing investment. — The Jakarta Post/ANN
