In its latest East Asia and Pacific Economic Update, the World Bank is optimistic about Indonesia's recent economic performance as well as its future prospects. The country's FY-2017 gross domestic product (GDP) expanded at the fastest pace in four years, led by stronger investment and net exports. Meanwhile, its current account deficit narrowed to a six-year low, while the central government's budget deficit reached the lowest since 2014, on the back of stronger global trade and strengthening commodity prices.
Regarding the foreseeable future, the World Bank is optimistic that - despite weaker commodity prices - the nation's economic outlook is positive due to rising private and government consumption, partly lifted by the upcoming elections. In 2018 Indonesia will organize local elections, while legislative and presidential elections are scheduled for 2019.
Indonesia's economic growth touched 5.2 percent year-on-year (y/y) in the fourth quarter of 2017, the highest growth in six quarters. Accelerating economic growth was driven by higher domestic demand, stronger investment, and rising private and government consumption. Albeit slowing, Indonesia's export and import growth remained robust due to a sustained recovery in global trade and commodity prices.
Headline consumer price inflation eased to an average of 3.5 percent (y/y) in Q4-2017 from 3.8 percent (y/y) in the preceding quarter, largely due to muted food price inflation, which reached the lowest quarterly average in 14 years. Core inflation in Q4-2017 remained unchanged from the 3 percent in the preceding quarter, the lowest quarterly average on record, reflecting stable inflationary pressures as the economy operates at near-full employment. In annual terms, headline inflation was 3.8 percent, higher than the 3.5 percent in 2016, predominantly due to increases in administered prices, notably the three electricity tariff hikes in the first half of 2017.
Indonesia's macro financial conditions remained stable. Bond yields declined by an average of 150 basis points (bps) across all tenors in 2017, following a 90 bps drop in the preceding year. Monetary policy remained stable with the policy interest rate being held steady at 4.25 percent in Q4-2017, following the two consecutive 25 bps cuts in Q3-2017. Gross capital inflows in 2017 surged more than three times that of 2016 on improved investor confidence due to the credit rating upgrades.
(Source: Indonesia Investment)