February 7, 2023
JAKARTA – Indonesia’s economy grew last year at the fastest pace since 2013, marking the highest economic output since President Joko “Jokowi” Widodo took office.
The country’s gross domestic product (GDP) rose by 5.31 percent in 2022, handily beating the preceding year’s 3.71 percent but failing to match the 2013 figure of 5.56 percent, Statistics Indonesia (BPS) reported on Monday.
Economic output in the fourth quarter of last year increased by 5.01 percent from the equivalent period of 2021, much lower than the year-on-year (yoy) increase of 5.72 percent seen in the third quarter.
The statistics agency attributed the slowdown to weaker purchasing power as a result of increased inflation in last year’s final quarter.
“Indonesia experienced solid economic growth in 2022,” BPS head Margo Yuwono told reporters in a press conference called to publish the latest GDP report.
The World Bank and the International Monetary Fund had expected Indonesia’s 2022 GDP growth to come in at 5.2 and 5.3 percent, respectively, while the Asian Development Bank had a bullish forecast of 5.4 percent.
Household spending, long the backbone of the domestic economy, remains the main source of growth, contributing 2.61 percentage points (ppt) to the overall GDP growth rate.
Looser COVID-19 pandemic restrictions paved the way for more people to enjoy transportation and leisure services last year, as reflected in a 4.93 percent annual rise in spending in this category, nearing the pre-pandemic level of 5.04 percent.
Bank Indonesia (BI) has been raising its key interest rate since August last year to contain inflationary pressure stemming from the depreciation of the rupiah against the United States dollar and from a government-mandated hike in subsidized fuel prices in September.
As of January, the central bank had raised its benchmark seven-day reverse repo rate by a total of 225 basis points.
But even in the face of repeated hikes, the manufacturing purchasing managers index (PMI) remained in expansionary territory above the threshold of 50 points throughout last year, and retail sales grew 5.94 percent.
At BI’s latest monthly monetary policy meeting, held last month, Governor Perry Warjiyo described the current interest rates as “adequate” to achieve this year’s inflation targets, which economists interpreted as a signal from the central bank that the hiking cycle is over.
Asked to comment on the latest GDP data, Bank Mandiri chief economist Andry Asmoro told The Jakarta Post on Monday that the data added to “positive sentiment for [the] Indonesian market.”
Gross fixed capital formation (GFCF), or investment, was the second-biggest contributor to GDP growth last year, accounting for 1.24 ppt.
Incentives by the government to boost capital injections, regulatory reforms and massive infrastructure programs have encouraged some firms to increase their expenditure on machinery and vehicles, which grew 3.87 percent yoy.
At that rate, however, GFCF growth is a far cry from the pre-pandemic level, with Margo noting that it had increased by 4.45 percent in 2019.
Realized investment, excluding micro, small and medium enterprises (MSMEs), the financial sector as well as the oil and gas sector, rose 34 percent to Rp 1.207 quadrillion (US$79.6 billion) last year, exceeding a target set by President Jokowi, according to Investment Ministry data.
As the government resumed work on its national strategic projects, GFCF was expected to lean more on construction investment this year, Bank Mandiri economist Faisal Rachman told the Post.
“This is backed up by the higher budget [allocation] for infrastructure in the 2023 state budget,” Faisal said.
Net exports of goods and services contributed 0.81 ppt to the overall growth figure for 2022.
Growing 16.28 percent in the course of last year, exports outpaced imports, which rose 14.75 percent.
Exports were driven by strong growth in the shipment of coal, metals and vehicles.
Indonesia reached its highest-ever trade surplus last year at $54.46 billion as the war in Ukraine and sanctions imposed on Russia pushed up global prices of many commodities, benefitting major commodity exporters like Indonesia.
Although the exports windfall might persist in the coming months, its effect is expected to fade as crude palm oil (CPO) prices in global markets have dwindled.
CPO prices in December were down 25 percent from a year earlier, according to World Bank data.
CPO accounted for around 12 percent of the $291.98 billion worth of Indonesian exports last year.
“The trade surplus will narrow on the back of rising import prices and lower commodity prices,” Irman Faiz, an economist with publicly listed private lender Bank Danamon, told the Post on Monday.
President Jokowi said on Monday that Indonesia had returned to the upper-middle income status, where it had briefly stood before the coronavirus pandemic struck the country’s emerging economy.
“I hope we can make a great leap forward,” Jokowi said.