With a nominal GDP forecasted by the IMF experts to exceed USD 1.4tn in 2024, Indonesia is included in the Top 20 economies in the world.
The economy of Indonesia presented a high level of resilience in the context of the outbreak of the exogenous shocks over the past years as coronavirus pandemic (the worst health crisis in the world in more than one century), the intensification of the geo-political tensions, and their consequences for the world economy: the geo-economic fragmentation (with negative impact for the international trade), the high levels of the real financing costs (with consequences for the investment climate).
The GDP of Indonesia contracted by an annual pace of only 2.1% in the pandemic year 2020 and increased by annual dynamics of 3.7% in 2021, 5.3% in 2022 and 5.0% in 2023, if we take into account the estimates of the International Monetary Fund (IMF, 2024).
According to the econometric estimates elaborated using the database of the International Monetary Fund (IMF, 2024), the economy of Indonesia advanced by a pace above its potential for the second year in a row in 2023, as can be noticed in the following chart.
Figure 1. The evolution of GDP vs. potential output in Indonesia (annual pace, %)
Source: representation of the author based on the econometric estimates, using the database of the International Monetary Fund (IMF), November 2024
However, the annual pace of the potential output presented a downward trend after the outbreak of the Great Financial Crisis, to 3.7% in 2023, the weakest pace since 2001, an evolution reflecting the maturity of the growth model of the past decades.
In the macroeconomic scenario, updated in October 2024, the experts of IMF forecast the GDP of Indonesia to increase by an average annual pace of over 5% by the end of this decade.
This perspective is supported by the high level of the investments and by the continuity of the upward trend for the population.
The total investments / GDP ratio is forecasted by IMF at an annual average of 30.7% for the period 2024 – 2029, in a context of the low levels of the inflationary pressures and of the public debt.
According to IMF the population of Indonesia would increase from 278.7mn in 2023 to 295mn in 2029.
On the one hand, the consumer prices are forecasted to increase by an average annual pace of 2.5% during 2024 – 2029, slowing down from 3.7% in 2023, according to the IMF forecasts.
On the other hand, the IMF experts forecast an annual average for the public debt / GDP ratio of around 40% for the period 2024 – 2029.
In other words, the public debt/GDP ratio would consolidate in the coming years, due to the strong growth pace of the economy and to the low level of the budget deficit/GDP ratio (an annual average of 2.4% in the interval 2024 – 2029).
The continuity of the investment flows in the economy of Indonesia will have positive impact for the labour market, the unemployment rate being forecasted to decline from 5.3% in 2023 to 5.2% in 2024 and 5.1% during 2025 – 2029, according to the autumn macroeconomic scenario of IMF.
The positive growth story of Indonesia in the mid-run is also reflected by the low level of the current account / GDP ratio (below 1.5% every year by the end of this decade).
In this context, GDP/capita in Indonesia would increase from USD 4,920 in 2023 to USD 6,883 in 2029, a level more than double compared to that of 2015.
About the author:
Dr. Andrei RĂDULESCU, Expert in global macroeconomy.
