The World Bank projects that Indonesia’s economy will remain resilient from 2024 to 2026, with several key highlights:
GDP Growth
Indonesia’s GDP growth is forecast to average 5.1% annually from 2024 to 2026. This growth is driven by increased public spending, rising business investment, and steady consumer demand. Indonesia’s successful economic performance is in large part thanks to the government’s robust macroeconomic policy framework, which helped attract investment. It is important to maintain prudent, credible, and transparent macro policy while creating fiscal space that enables priority spending on social protection and investment in human capital and infrastructure.
Inflation
Headline inflation is expected to average around 3% in 2024, with consumer prices rising due to adverse climate conditions affecting domestic food production. Rising food prices lifted headline inflation this spring. Consumer prices rose 2.8% from a year earlier in May, up from a 2.6% year-over-year increase in January. Adverse climate conditions reduced domestic rice harvests and affected food prices more broadly. Headline inflation is expected to average around 3% in 2024.
Interest Rates
Bank Indonesia raised its benchmark interest rate to 6.25% in April 2024 to address currency pressures and investment outflows. Rates will be cut next year as the global economic situation stabilizes.
Challenges
The report highlights four structural challenges: rising concentration in the manufacturing sector, slower reduction in regional income disparities, weaker wage growth, and limited geographic mobility of the labor force.
The World Bank emphasizes the importance of maintaining prudent macroeconomic policies and implementing reforms to boost private sector investment and productivity.
