The World Banks has projected that the Indonesian economy would grow at the level of 5.3 percent in 2018, higher than this year’s projection of 5.2 percent, according to the bank’s June 2017 Indonesia Economic Quarterly.
Meanwhile, the government and the House of Representatives’ Commission XI overseeing financial affairs agreed to set an economic growth target of between 5.2 and 5.6 percent in the 2018 State Budget early this week.
"Real GDP growth strengthened to 5.0 percent [year-on-year] in the first quarter of 2017, compared to 4.9 percent in the previous quarter, driven by a rebound in government consumption and surging exports," Rodrigo A Chaves, World Bank country director for Indonesia, said in Jakarta on Thursday.
Such growth forecast is in line with the expected increase of global GDP from 2.7 percent this year to 2.9 percent in the 2018-2019 period.
"Indonesian economic fundamentals are improving. Hence, the outlook continues to be positive. This is good news and sees growth potential as less vulnerable to global shocks," Rodrigo said as reported by Antara.
Fiscal performance in the first half of 2017 is strong, with improved revenue collection compared to last year and a better quality of expenditure.
Private consumption is expected to increase with moderate inflation, stable exchange rate, stronger consumer confidence and low consumer lending rates.
In the baseline estimate, investment is expected to strengthen due to continued recovery in commodity prices, increased investor confidence supported by the S&P rating upgrades, and declining commercial lending rates.
Consumption recovery drives Indonesia's growth outlook to 5.4% in 2018
Higher wages and low inflation levels are expected to drive consumption levels.
Indonesia’s economy is expected to rebound to 5.4% in 2018 as consumption recovery and continuing infrastructure investment is projected to deliver firmer growth by next year, according to Bank of America Merrill Lynch.
BofAML notes that this year’s growth has been held back low levels of private consumption but is expected to rally the next year as the fundamental drivers remain solid with the opening of four million new jobs, solid wage growth and low food inflation recorded this year.
“On the policy front, we expect both monetary and fiscal policy to remain supportive of the economy in 2018. As inflation slows and growth remains below potential in the near-term, we are anticipating Bank Indonesia to lower its policy rate by a further 25bp sometime in 1Q 2018,” they added.
Ongoing infrastructure projects are also expected to boost investment as it nears completion in 2019 whilst exports are expected to be propped up by favourable global environment and stable growth in China.
Here’s more from BofAML
Alongside the gradual closing of the output gap, core inflation is expected to tick up to 3.3% in 2018 from 3.2% this year. However, headline CPI should continue to soften (2018F: 3.2% vs 2017F: 3.8%) on lower administered price inflation as we are unlikely to see major regulated price changes ahead of the elections.
With the budget assuming crude oil prices to average US$48/bbl in 2018, the risk is clearly towards a higher subsidy bill if there is resistance to change retail prices ahead of key elections. The net impact on overall deficit is likely to be smaller as revenues would be boosted as well - we estimate that every $10 move higher in brent could result in additional revenues of around 0.4% of GDP. Over the longer term, Indonesia needs a more transparent pricing formula for retail prices (like that adopted in Malaysia) rather than the current ad-hoc system in place.