Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Indonesia is seen as a future economic giant. It is the largest economy in Southeast Asia and the world's seventh by purchasing power parity (World Economics, 2022). Due to the COVID-19 pandemic, the country registered negative GDP growth for the first time since 1998, going from +5% in 2019 to -2.1% in 2020. The GDP growth rate for 2021 was back in the positive territory with an estimated +3.7% and +5.3% in 2022 (IMF, October 2022). The usual key drivers of the economy are private domestic consumption - stimulated by its huge market with a growing middle class of over 70 million people (55% of GDP), while the major issues are the ongoing trade tensions between China and the US, the country's two biggest trading partners, and the prolonged depreciation of the Rupiah. According to the IMF's October 2022 forecast, GDP growth is expected to stay high at 5% in 2023 and 5.1% in 2024, subject to the post-pandemic global economy recovery.

According to the IMF, the budget deficit rose from 2.2% of GDP in 2019 to 5% in 2020 and 3.7% in 2021.The deficit stabilised at 3.3% in 2022 and is expected to remain at 2.7% in 2023 and 2024. Inflation reached 1.6% in 2021 and increased to 4.6% in 2022. It is expected to stay high in 2023 at 5,5% before coming down at 3.4% in 2024 (IMF, October 2022). Public debt has shown a significant improvement since the Asian Financial Crisis in 1998 (it reached up to 150% of GDP), but it rose slightly to 30.6% of GDP in 2019 before climbing again due to the COVID pandemic to 39.8% in 2020 and 41.2% in 2021. The debt remained at 40.9% in 2022 and is expected to stabilise at 40.4% in 2023 and 2024 (IMF, October 2022). Three social programmes (RPJMN, PNPM Urban and PAMSIMAS) have been launched to ensure that the poorest strata of the population have access to healthcare and education. Other structural issues that remain to be tackled include a large public infrastructure gap, high labour informality and youth unemployment, and low educational attainment. Environmental protection also remains a major challenge. The government hopes to take advantage of the country's strategic location between Asia and the Pacific in the current unfavourable international context (weakening demand from China and falling commodity prices), and aims to be in the top six largest economies by 2030.

Although it has been decreasing over the last decade the unemployment rate has sharply increased from 5.2% in 2019 to 7.1% in 2020 before reaching 6.5% in 2021 and 5.5% in 2022. It should remains relatively high for the region in 2023 and 2024 with 5.3% and 5.2% respectively (IMF, October 2022). The number of people working in vulnerable conditions has also increased in 2022. Indonesia has achieved enormous gains in poverty reduction, cutting the poverty rate by more than half since 1999, to approximately 9.8% of the population in 2020. The effect of the pandemic pushed it to 10.4% in 2021 and 9.5% in 2022 (World Bank, 2022). Indeed, the country has still one of the fastest rising inequality rates in the East Asia region according to World Bank. In a few months, the pandemic reversed some hard-won advances in well-being, with poverty, malnutrition, and even hunger rising fast (OECD, 2022).

In 2023, the country’s most immediate challenge will be to navigate the volatile international context, facing steep challenges against a backdrop of the persistent health and economic overhang of a global pandemic and a war in Europe, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.

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