February 6, 2024
JAKARTA – Indonesia’s economy expanded at a much slower rate last year, with weaker household spending and exports weighing on the country’s economic output.
The country’s GDP grew by 5.05 percent last year, much lower than the 5.31 percent logged the previous year, Statistics Indonesia (BPS) data show.
This figure also fell short of the 5.3 percent target stipulated in the government’s budget for last year, but it fell exactly in line with the Finance Ministry’s projection for 2023 made in early January.
Interim BPS head Amalia Adininggar Widyasanti attributed the slowdown to slower growth in spending, particularly among upper-middle earners, as hinted by the much lower collection of luxury goods tax, a decline in air travel and a drop in car sales last year.
“Meanwhile, financial investments like futures strengthened, indicating a slight shift from spending to investment,” said Amalia
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Growth in household spending, which contributed over half of the national GDP, dipped to 4.82 percent last year from 4.93 percent the year before.
The group saw its growth slide in the last three quarters from 5.22 percent in Q2 to 5.06 and 4.47 percent in Q3 and Q4, respectively.
Growth in exports, which contributed almost a quarter to the GDP, plummeted to just 1.32 percent last year amid a weaker global economy and commodity prices, whereas the country had booked over 16 percent at one point in the previous year.
Coordinating Economic Minister Airlangga Hartarto remained confident that the 2023 growth was still some of the highest in the world, pointing out that only a few countries had managed to reach that figure, citing China and the Philippines as examples.
According to the International Monetary Fund, world economic output was projected to only grow by 3.1 percent last year, with developed countries expected to post almost half of the world’s estimate.
Airlangga told reporters during a press briefing on Monday that the Indonesian people had resorted to increasing their savings due to uncertainty, which was why the government was disbursing social assistance for lower-middle earners.
“This is so purchasing power can be maintained and therefore increase market confidence,” said Airlangga.
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However, Tauhid Ahmad, analyst at the Institute for Development of Economics and Finance (INDEF) told The Jakarta Post on Monday that lower consumption may imply weaker purchasing power in Indonesian households, which thereby leads to less spending.
Manufacturing, trade, agriculture, transportation and logistics, which combined contributed half of the GDP, booked weaker growth in 2023. Manufacturing, for instance, grew by only 4.64 percent from previously 4.89 percent in 2022.
The mining and construction sectors, which together contributed a fifth of the GDP, however, continue to grow at a faster pace in 2023 compared with the previous year.
Economist from private lender Bank Danamon, Irman Faiz, wrote in a statement on Monday that he expected household consumption to continue slowing down this year. The same went for exports.
Irman said investment, which was indicated by BPS’ gross fixed capital formation (PMTB), had shown much better growth due to a flurry of government-led infrastructure projects last year.
This component, which contributed almost 30 percent of the GDP, grew by 4.4 percent, slightly faster than the 3.87 percent seen in the previous year.
However, he saw that the government’s investments after the election on Feb. 14 may not be as robust as last year, citing the transition to the new administration as one of the factors.
Private lender Bank Permata chief economist Josua Pardede said in an analysis on Monday that the global economic slowdown had dragged down international trade last year, which subsequently lowered commodity prices, thereby downing overall exports, including for Indonesia.
He said several major commodity prices had hit record highs in 2022, but last year, most of these were normalized despite remaining higher than the pre-pandemic level.
This trend would continue this year, he said, therefore potentially quenching this year’s exports further.
Moreover, Josua said Indonesia’s economy faced risks stemming from food inflation due to the El Niño weather phenomenon, which would dampen household spending despite the government’s efforts to mitigate the risks through social assistance.
Meanwhile, the general election would cause investors to continue their wait-and-see approach, holding out for the result before realizing their investment.
The government has maintained that overall it could achieve 5.2 percent GDP growth this year, but both Josua and Irman expect far weaker growth, at 5.07 and 4.9 percent, respectively.