Indonesian economy; Should we be more optimistic about Indonesia’s economic growth in 2022?

Does this mean that the AfDB has decided to swim against the tide (as we have seen various global and national institutions lower their expectations for Indonesia’s economic growth in 2022 in recent months), or are we now witnessing at the beginning of an improvement in perceptions of the Indonesian economy? This is the main question that we will answer (well, at least try to answer) in this article. And, we do this by taking a detailed look at the latest macroeconomic indicators from Indonesia.

Let’s first see why the AfDB decided to raise its outlook for Indonesia. In its latest Asian Development Outlook 2022 supplement, it stated that:

“The 2022 growth projection for Indonesia is raised from 5.0% to 5.2%, reflecting robust domestic demand and exports. Economic activity continues to normalize and COVID-19 infections remain quite manageable. Improved employment, incomes and confidence fuel private consumption. Healthy demand and rising credit stimulate private investment. However, fiscal policy is becoming less supportive as pandemic-related spending is reduced. Rising prices for key commodity exports, such as coal, palm oil and nickel, are generating windfall export earnings and tax revenues, which more than offset higher tax subsidies for fuel, l electricity and food.

In essence, there are no new developments mentioned in the paragraph above. And so, perhaps the revision was made because the current cycle of high commodity prices is lasting longer – or reaching higher highs – than the AfDB had previously anticipated, and because it is now become acceptable to state that the COVID-19 threat has abated considerably since the arrival of the Omicron variant at the end of 2021 (allowing governments to relax all restrictions, and thus making room for acceleration economic activity).

In line with Indonesia’s revised outlook, the AfDB’s projection for Southeast Asia’s growth in 2022 has been raised slightly from 4.9% (y/y) to 5.0% (y/y) ), with domestic demand benefiting from the continued easing of COVID-19 related restrictions as well as the reopening of borders in some economies in the region.

However, the AfDB has decided to revise its growth forecast for developing Asia from 5.2% (y/y) to 4.6% (y/y) in 2022 (which is quite a significant downgrade ) as the economic outlook has deteriorated as a direct result of the Russian crisis. the invasion of Ukraine, more aggressive monetary tightening in advanced economies, and COVID-19 related lockdowns in China.

So, despite the challenges posed by rising crude oil prices, the end of low global interest rates, and continued trade and supply disruptions, Southeast Asia appears to be doing slightly better than the other parts of Asia (and most other parts of the world).

[…]

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