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STRATEGIC ASSESSMENT. Next year Indonesia will face a perfect storm in the form of a global economic slowdown, high inflation and geopolitical tension. In its World Economic Outlook October 2022 report, the International Monetary Fund (IMF) again lowered its 2023 global economic growth projection to 2.7 percent, from 2.9 percent in July 2022 and 3.8 percent in January 2022.
The IMF also predicted that 31 countries representing 43 percent of the world economy would experience an economic recession in 2023. Other prominent international institutions such as the World Bank and OECD conveyed the same message.
The Indonesian economy has been affected through both trade and financial channels. The impact through the trade channel can be seen in massive worker layoffs in textile and footwear companies due to the weakening global demand. Meanwhile, the impact through the financial channel can be seen in the capital outflows as foreign-portfolio investors unloaded their rupiah assets as government bonds.
Bank Indonesia (BI) Governor Perry Warjiyo at the 2023 Jakarta Economic Outlook National Seminar said the central bank projects that inflation will fall to a level of 1.5 to 3.5 percent in 2024 after possibly lying in the range of two to four percent in 2023. Currently, inflation is recorded at 5.42 percent as of November 2022 as compared to the same period last year or on a year-on-year (yoy) basis.
He said the synergy to reduce inflation was driven by energy subsidies by the government, a measurable increase in BI interest rates, measures to stabilize the rupiah by BI, and the close coordination of Central and Regional Inflation Control Teams (TPIP and TPID), including the National Movement for Food Inflation Control (GNPIP).
Economic Affairs Coordinating Ministry Secretary Susiwijono Moegiarso said the government is confident Indonesia’s economic growth will remain resilient in reaching the 5.2 percent target in 2022 and reach 5.3 percent in 2023. The G20 Summit outcomes, especially the Bali Leaders’ Declaration, became a collective solution to global challenges, he said.
The success of Indonesia’s G20 Summit shows the world’s recovery of trust in multilateralism in solving global problems, increasing trust in leadership, and strengthening countries’ commitment to global issues. Indonesia will chair ASEAN in 2023. The bloc has shown its resilience by growing faster than the global average during the global crisis.
Indonesia is set to enact sweeping changes to its financial sector regulation as soon as this week, after two years of thwarted attempts and market pushback.
The proposed law seeks to expand the central bank mandate and cement its authority to buy government bonds during times of crisis, as it had done in the past three years to shore up Southeast Asia’s largest economy. By the end of 2022, the central bank would have bought 1,144 trillion rupiah ($73 billion) in debt papers. The bill also seeks to bring regulations in step with the rapidly evolving fields of financial technology and cryptocurrency.
The Indonesian Employers’ Association (Apindo) believes that in 2023, the Indonesian economy will survive and not experience a recession, disparate to the concerns expressed by some parties.
“If there is no recession, and what needs to be paid attention to is growth that is evenly distributed and enjoyed by as many people as possible,” Apindo Chairman Hariyadi B. Sukamdani stated. Sukamdani made the statement at the Apindo VII Provincial Conference of West Sumatra themed “Strengthening the Industrial World Business in Facing the Global Economic Recession.”
Meanwhile, separated place, US Treasury Secretary Janet Yellen says inflation will be much lower by the end of next year, as long as there are no unanticipated shocks to the economy.
“I believe inflation will be lower,” Yellen said during an interview Sunday on CBS’ “60 Minutes.” “I am very hopeful that the labor market will remain quite healthy so that people can feel good about their finances and their personal economic situation.”
The US this year battled the worst inflation in four decades as the global economy dealt with post-pandemic demand and supply shocks following Russia’s war in Ukraine. After hitting a peak of 9.1% in June, consumer inflation is expected to have slowed to 7.3% in November from 7.7% the previous month, according to economists surveyed by Bloomberg News before a government report.
