Indonesia's Economic Growth Rate in 2024: 5.03% - Lowest in 3 Years

 

Indonesia's economic growth falls short of government target, raising concerns about potential measures to stimulate recovery

Indonesia's economy grew by 5.03% in 2024, marking the lowest growth rate in the past three years, according to a report by the Indonesian Central Statistics Agency (BPS) released on February 6. Despite maintaining a growth rate above 5%, the growth fell short of the government's target of 5.2%. This performance follows a trend of slowing growth, as the country posted a 5.3% GDP increase in 2022 and 5.05% in 2023.

Weak Consumer and Investment Growth: A Concern for Indonesia’s Economy

The key drivers of the country's GDP, particularly household consumption and investment, showed signs of slowing down in 2024. Household consumption, which accounts for more than half of Indonesia's GDP, grew by just 4.94%, falling behind the overall growth rate. Similarly, investment growth was recorded at 4.61%, the lowest increase in recent years, although it was still the highest in six years.

Trade performance, on the other hand, remained strong, with Indonesia recording a trade surplus of $31 billion, despite a 16% decline compared to the previous year. This trade surplus helped to somewhat buffer the overall growth slowdown.

Possible Economic Stimulus and Rate Cuts to Boost Growth

As Indonesia's economy faces a downturn, experts suggest that further monetary easing and stimulus measures may be on the horizon. Analysts anticipate that Bank Indonesia (BI), the country's central bank, may consider additional interest rate cuts to support the slowing economy. The central bank's surprise rate cut in January, reducing the key interest rate from 6.0% to 5.75%, is seen as a step toward addressing the slowdown. This move was followed by a revision in the growth forecast, which was adjusted from 4.8-5.6% to 4.7-5.5% for 2024.

Abe Ryota, an economist at SMBC, emphasized the link between weak automotive sales and the broader slowdown in durable goods demand. He expressed his belief that BI may implement further rate cuts to prop up domestic consumption and investment, both of which are struggling to meet expectations.

Government Plans to Address Economic Weakness

In response to the economic slowdown, the Indonesian government has already signaled plans to introduce stimulus measures aimed at boosting domestic demand. Coordinating Minister for Economic Affairs, Airlangga Hartarto, announced that the government will implement measures such as electricity bill refunds and income tax cuts for factory workers. These actions are intended to help the working class cope with the ongoing economic pressures. Additionally, as Indonesia’s largest holiday season, the Lebaran festival, approaches in March, the government plans to introduce transportation fare discounts and stabilize food prices to further support consumers.

In conclusion, while Indonesia’s economy remains resilient with continued trade surpluses, the nation faces a difficult road ahead to recover from its lowest growth rate in three years. The government's potential monetary and fiscal policies, including interest rate cuts and targeted stimulus packages, will likely play a pivotal role in stimulating the economy and ensuring sustainable growth in 2024 and beyond.