Country Forecast Indonesia August 2017 Updater

Country Forecast Indonesia August 2017 Updater

  • August 2017 •
  • Report ID: 1698218 •
  • Format: PDF


  • The president, Joko Widodo (known as Jokowi), will serve out his full five-year term in office. He will run for re-election in 2019, which he is likely to win, but he will still face a stronger challenge from Prabowo Subianto, the leader of the opposition Great Indonesia Movement Party (Gerindra) in the House of Representatives (DPR, the legislature), who lost to Jokowi in the 2014 ballot.
  • In the last two remaining years of his term, Jokowi's priority will remain focused on improving the business environment and raising investment for infrastructure and manufacturing development.
  • During his term so far, Jokowi's administration has been successful in maintaining economic stability and reducing various structural bottlenecks. However, other serious productivity drains such as stringent labour and local government laws, which are more politically difficult to tackle, remain unaddressed.
  • Bank Indonesia (BI, the central bank) currently holds a cautiously dovish stance on monetary policy. The Economist Intelligence Unit expects BI to be more vigilant from next year in order to ward off price and downward currency pressures, amid a more challenging global environment. We expect monetary policy to be tightened slowly from mid-2018.
  • Economic growth will remain below potential owing to the slow pace of structural reforms and depressed global demand for commodities, but the government's infrastructure drive should help to keep investment relatively stable. Steady private consumption will remain a key pillar of Indonesia's even growth rates. We forecast that real GDP growth will average 5% a year in 2017-21.
  • The rupiah will face headwinds in the early part of the forecast period, owing to our forecast of a sharp slowdown in China's economy in 2018, as well as continued rises in US interest rates. We expect the rupiah to appreciate modestly in 2020-21 as investor confidence returns and as external demand conditions recover.
  • The current account will remain in the red owing to a large and widening primary income deficit. Indeed, we expect borrowing costs to increase in line with monetary policy tightening in the US.
  • The merchandise trade account will continue to record a surplus, but it will remain far below historical highs and too small to offset deficits on the services and primary income accounts. We expect the current-account shortfall to average the equivalent of 1.6% of GDP in 2017-21.


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