The Indonesian economy is currently the 16th largest economy in the world with a nominal gross domestic product (GDP) of $1.12 trillion in 2020. It is the largest economy in Southeast Asia and is considered one of the emerging market economies globally.
Indonesia is a lower-middle-income nation and is classified as a newly industrialized country. It is a member of the Group of Twenty (G20) intergovernmental forum that works together to address issues surrounding the global economy.
The Indonesian economy mostly depends on its domestic market and government budget spending, along with its state-owned enterprises.
Since its independence in 1945, the country’s economic growth has faced numerous disruptions due to political instability, high levels of regulation, and dependence on oil prices. In the 1990s, corruption in the government was at its highest, leading to further economic distortions.
However, following the 1997 Asian financial crisis, the government took control of private-sector assets which were later sold for privatization. Since 1999, Indonesia’s economy has been growing between 4% to 6%.
In 2012, it outperformed India to become the second-fastest-growing economy in the G20, only behind China. However, the country recorded its first recession in 2020 after more than two decades of consistent growth. The economy contracted by 5.3% in the second quarter and 3.49% in the third quarter.
Indonesia GDP Annual Growth Rate (in%)
The International Monetary Fund (IMF) has revised its GDP growth forecast for Indonesia for 2021 from 4.3% last April to 3.9% this July. The downgrade was attributed to the country’s low vaccination rate as it faces new challenges due to the Covid-19 Delta variant.
The Indonesian government has also lowered its GDP growth projection from between 4.5% and 5.3% to between 3.7% and 4.5%.
Currency and Central Bank
Indonesia’s official currency is the rupiah, whose name comes from the Sanskrit word rupyakam, meaning silver. It is divided into 100 sen, but due to high inflation, all coins and banknotes in sen have been rendered obsolete.
Bank Indonesia serves as the country’s central bank and is currently headed by its governor, Perry Warjiyo. The bank was founded in 1953 after the private Dutch bank, De Javasche Bank or Bank of Java, was nationalized three years post following the country’s independence from the Netherlands.
Indonesia Inflation (in %)
The BI Board of Governors has decided to maintain the BI 7-Day Reverse Repo Rate at 3.50%, while also keeping the Deposit Facility (DF) rates at 2.75% and Lending Facility (LF) rates at 4.25%. The central bank is focusing on macroeconomic and financial stability.
Its other policy measures include strengthening prime lending rate (PLR) transparency, boosting Quick Response Code Indonesia Standard (QRIS) uptake, and continuing to socialize the use of local currency settlement (LCS) alongside other relevant institutions.
Industry and Trade
The country has a young population of 274.8 million with a workforce of 136.7 million people as of 2020. Over the years, Indonesia has transformed from being an agricultural economy into a more balanced one, detaching from its previous dependency on primary exports.
Indonesia’s agricultural sector comprises 12.7% of the country’s GDP while providing employment to 27% of the labor force. It is the second-largest producer of natural rubber globally. Other major agricultural products include rice, sugarcane, coffee, tea, tobacco, palm oil, coconuts, and spices.
Meanwhile, the industrial sector contributes to about 38.9% of the GDP and employs 22.7% of the workforce. Products manufactured in Indonesia include textiles, cement, chemical fertilizers, electronic products, rubber tyres, clothing, and shoes.
Indonesia’s service sector has grown to be the biggest contributor to the country’s GDP at 44.2% and employs 49.6% of the workforce. Banking and tourism are two of the largest service sectors in the country.
Indonesia Balance of Trade
The country ranks 30th in total exports globally. Its main export products are coal briquettes, palm oil, petroleum gas, automobiles, and gold. China, the US, Japan, Singapore, and India are Indonesia’s leading export partners.
Meanwhile, the nation is also ranked 30th in total imports, with refined petroleum, crude petroleum, vehicle parts, telephones, and petroleum gas as Indonesia’s main import products. The country’s main import partners are China, Singapore, Japan, Thailand, and the US.
Survey and Rankings
In the World Bank’s Ease of Doing Business 2020 rankings, Indonesia’s economy maintained last year’s position at 73rd among 190 countries with a score of 69.6. The World Economic Forum’s Global Competitiveness Index (GCI) rankings have been paused for 2020, but in 2019, the country fell by places to the 50th spot with a score of 64.6.
Additionally, the country also went down by two places in the Heritage Foundation’s 2021 Index of Economic Freedom from the 54th to 56th in the world and is currently 10th among Asia-Pacific countries. The country also remained in the “moderately free” category.
Stock Exchanges and Capital Markets
The Indonesia Stock Exchange was formed when the Jakarta Stock Exchange and the Surabaya Stock Exchange merged in 2007 and has 656 listed companies in December 2019, with around 1.1 million total stock investors.
The Jakarta Composite Index (JCI) and the Jakarta Islamic Index (JII) are the two primary stock market indices used to measure the performance of the Indonesia Stock Exchange. As of March 2021, the Indonesia Stock Exchange is ranked 1st in ASEAN, 4th in Asia, 9th in Asia-Pacific, and 25th globally in terms of year-to-date change based on the JCI.
The bond market in Indonesia has experienced steady growth over the past few years. Currently, it offers a diverse selection of debt instruments that cater to both local and foreign investors. Bonds may come in the form of the Bank Indonesia-issued Certificate of Central Bank or Sertifikat Bank Indonesia (SBI), government bonds or government debt securities, and corporate bonds.
As of March 2021, Indonesia’s domestic currency bond market has grown by 36% from the previous year to $330.4 bn. About 89% of these are government bonds while corporate bonds comprise 9% of the total. The remaining percentage is made up of central bank issuances.
Real Estate Market
Despite the pandemic, real estate prices in Indonesia have remained relatively steady. However, although price increases may be on a downtrend at only 1.77% in 2019 compared with 2.95% in 2018 and 3.5% in 2017.
Sales of the residential property went down by 30.9% year-on-year in the third quarter of 2020, after declining by 25.6% and 43.2% year-on-year in the first and second quarters, respectively.
Indonesia Housing Index (in %)
Last year, the government introduced a $53.26 bn stimulus package, which included $107.3 m in funds for the subsidized housing program to build 175,000 new homes.
In Jakarta, the typical cost of buying an apartment is $311,400, or about $2,595 per square meter. Meanwhile, the average monthly rent in the capital is $1,840. This gives apartment owners a yield of approximately 7.09%.
Source of graphics: tradingeconomics.com