INDONESIA has the largest economy in Southeast Asia. After contracting 13pc during the 1997-98 Asian financial crash, the consumption-driven and resource-rich economy registered uninterrupted growth for 13 years, even during the global financial crisis, surging an average 6.3pc annually since 2010.
Last year, when its GDP hit $846bn and foreign direct investment jumped 26pc to a record $23bn, Indonesia became the 16th biggest economy.
Consulting firm McKinsey’s recent report reveals that about 90m Indonesian will join the middle classes by 2030, a major increase from an estimated 40m in 2010. The country could become the world’s 7th-largest economy, overtaking Germany and the UK by 2030. To achieve 2030 goal, the McKinsey estimates that the country has to boost productivity growth to 4.6pc a year, 60pc higher than it has been during the past decade.
The economy continues to stay on a sound growth track. registering growth close to 5pc last year. In 2015, it was 4.8pc. Though still ahead of the global average, this marks the country’s slowest rate of expansion in more than five years.
Efforts to spur growth in 2015 through higher spending and major infrastructure projects produced mixed results in a year dominated by weaker commodity prices.
Last year’s growth was respectable for a commodity exporting country but was not enough to absorb 3m youth entering the work-force and reverse the recent trend of slower poverty reduction. If the government carries on with its attempts to start stalled infrastructure projects, increasing public outlays will provide stimulus to investment.
In 2016, the economy lost some steam in the first-quarter. However, recent data suggest that economic activity picked up towards the end of second-quarter, expanding by 5.18pc, on year-on-year basis compared to a downwardly revised 4.91pc growth in the previous quarter.
The second-quarter growth was the strongest since 2013 fourth-quarter, driven by a faster increase in private consumption and government spending while investment eased and exports fell at a slower pace. Thus in the first-half of 2016, the economy grew by 5.04pc, faster than a 4.70pc expansion in the same period a year earlier.
The government stimulus, loose monetary policy and falling inflation will help shore up growth. For full-year, the central bank has trimmed growth to 5pc, below the government’s 5.2pc target.
The economy continues to face a number of headwinds. Drag on the economy will come in the form of low commodity prices, which despite their rebound since the start of the year, remain depressed by historical standards.
With lower prices hitting government revenues hard, the fiscal policy will need to be tightened as the government tries to balance the books. Indonesia’s 2016 budget deficit reached 1.83pc of GDP in the first-half, compared with the full-year target of 2.35pc.