Indonesia

Indonesia: strong growth

The Indonesian economy is growing at a strong pace with prudent fiscal and monetary policies, but elevated inflation puts pressures on the overall economic performance. The EPI grades Indonesia’s current economic performance at a B level, with the EPI score projected to be close to 91.8% in 2016.

GDP growth is projected to reach 5.1% in 2016, mainly driven by private consumption. Inflation remains close to 5.4%, despite disinflationary effects of lower commodity prices. Import-substitution policies, such as the imposition of higher tariffs across a range of consumer goods, as well as the currency weakness have also created inflationary pressures in 2015-2016. The budget deficit is projected to stay close to 2% of GDP, despite the government’s expansionary policies. Unemployment has been on a declining path and is projected to be below 6% in 2016.

The 5-Minute Economist projects Indonesia’s EPI score to increase gradually in the medium term from almost 92% currently to about 95%, or a B+ level, by 2020. Economic growth is likely to accelerate, with the main contribution to economic growth coming from private consumption, supported by the rising number of formal-sector jobs, the expansion of the social-welfare net, and some loosening in monetary policy. Inflation is likely to slow down slightly, but budget deficit and unemployment levels are likely to stay close to their current levels.