Indonesia’s Economic Growth Could Reach 5.2 Percent in 2018

Minister and Head of National Development Planning Agency Bambang Brodjonegoro - Photo by Bappenas

JAKARTA (TheInsiderStories) – Indonesia’s GDP growth has the potential to exceed 5.2 per cent in 2018, driven by expected improvement in investment and exports, Bambang Brodjonegoro, Minister of National Development Planning, stated.

The Minister’s projection reflects an improvement from the current condition, considering that economic growth remained sluggish in the third quarter of this year, with just 5.06 per cent year-on-year, lower than the government and Bank Indonesia’s projection of 5.1 per cent.

However, the 2018 estimate is lower than the government’s official projection of 5.4 per cent, set in the 2018 State Budget.

Minister Bambang Brodjonegoro told TheInsiderStories that he predicts investments and exports to grow by 7 and 12 per cent, respectively, next year, offsetting low-pace growth in consumption, which is projected to increase just 5 per cent next year.

According to him, household consumption has grown at a slower pace, by 4.93 per cent, in the third quarter, compared to 5.01 per cent last year, the result of a shifting Idul Fitri season and consumption diverting from staple foods to services (leisure).

There is a new middle income group which is no longer spending on food or clothing but rather laying out cash for travel and leisure. ‘People are no longer spending time in hypermarts, but instead go travelling, for instance to Taman Safari zoo. We can observe this from traffic jams during weekends,’ he added.

In addition, consumer goods imports rose in the third quarter, raising concerns on the part of the government that the bulge was actually coming from e-commerce and that Statistics Indonesia did not capture it. ‘We hope to maintain household consumption growth by above 5 percent next year,’ he added.

Fasial Basri, University of Indonesia economist, has previously warned of a possible ‘minor economic crisis’ in December because of ‘reckless’ government policies, particularly massive infrastructure construction.

‘It is possible there will be a small crisis in December, a crisis created by the government,’ he said.

According to Faisal, massive infrastructure development had not been well-planned. He said problems were likely to emerge in the construction of several airports, which had forced the government to spend vast amounts of money.

On the other hand, he said, the government was unlikely to achieve its tax revenue target. He estimated the shortfall would reach Rp 200 trillion (US$14.7 billion).

“Like it or not, the government will have to swallow a bitter pill because tax revenue will be far from the target and problems will mount at the end of the year,” he added

As of the first week of November, government tax revenues reached Rp869.6 trillion, representing 67.7 per cent of the target set in the Revised State Budget of Rp1,283.6 trillion.

Faisal also criticized Bank Indonesia for cutting its benchmark rate, which has put pressure on the Rupiah exchange against the US dollar. He believes the weakening of the Rupiah against the US dollar was a result of BI easing monetary policy.

As a consequence, he said, BI has had to use its foreign exchange reserves to prevent the Rupiah from weakening any further.

He said the government would still face problems in the first quarter of 2018.

OECD Projection

Meanwhile, the Organization for Economic Cooperation and Development (OECD) Development Center said in a report released Tuesday that growth in the Association of Southeast Asian Nations (ASEAN) will pick up over the medium term. The regional grouping is expected to grow by 5.2 per cent, compared with 5.1 per cent from 2011 to 2015. Robust consumer spending and ambitious infrastructure projects will drive growth in the region from 2018 to 2022, the OECD said.

Cambodia, Laos and Myanmar are projected to grow the fastest, while the Philippines will lead the expansion among the region’s five largest developing economies.

Gross domestic product in emerging Asia, which includes Southeast Asia, China and India, is forecast to grow by 6.4 per cent in 2017 in real terms, unchanged from last year, and by 6.3 per cent on average from 2018 to 2022. From 2011 to 2015, emerging Asia grew by 7.1 per cent. The region’s growth is also projected to remain solid in the medium term.

 Written by Yosi Winosa, email: