Indonesia’s economy grows 5.03% in 2024, but structural challenges loom
Country faces significant hurdles in breaking free from its longstanding 5% growth trajectory, posing a major test for President Prabowo’s 8% goal
[JAKARTA] Indonesia’s economy grew by 5.03 per cent in 2024, slightly down from 5.05 per cent in the previous year, based on data from the country’s statistics agency that was released on Wednesday (Feb 5).
The growth exceeded market expectations compiled by Bloomberg, which forecast 4.96 per cent, highlighting the economy’s resilience despite lingering uncertainties. But the figure fell short of the government’s 5.2 per cent target.
Analysts warned that South-east Asia’s largest economy will face significant hurdles in breaking free from its longstanding 5 per cent growth trajectory, posing a major test for President Prabowo Subianto’s ambitious goal of achieving 8 per cent growth during his five-year term.
Fithra Faisal, senior economist at Samuel Sekuritas, said that while the economy has proven resilient, the balance between sluggish demand and constrained supply-side growth will be key in determining whether Indonesia can achieve sustained, above-average expansion in the years ahead.
The economy is under pressure from US President Donald Trump’s looming tariff threats and tepid consumer demand, creating a clear need for government intervention to spark growth and stability.
Meanwhile, Indonesia’s gross domestic product grew 5.02 per cent in the fourth quarter of 2024, marking a 0.5 per cent increase from the previous quarter.
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The country’s economic growth last year was fuelled by robust household consumption, powered by its 280 million-strong population.
Spending rose 5 per cent year on year, reinforcing its role as the backbone of the economy, accounting for nearly half of Indonesia’s total GDP. Yet, purchasing power has struggled to break past the 5 per cent mark since the Covid-19 pandemic.
In response, the government has rolled out a series of fiscal and tax incentives, aiming to reignite consumer confidence and drive stronger economic momentum.
Airlangga Hartarto, coordinating minister for economic affairs, said that the government is set to roll out more incentives this year to boost public spending.
These measures, including discounts on public transport and toll road rates, are aimed at easing the financial strain on citizens, especially as the nation gears up for Ramadan and Idul Fitri in March, a time when demand for goods and services often soars.
“Our focus remains on fostering consumer confidence to ensure we hit our economic growth targets for 2025,” the minister shared in a separate media briefing.
Indonesia’s export performance surged 7.6 per cent last year, driven by increased global demand for gold and jewellery amid rising prices.
Meanwhile, investment grew 4.6 per cent, driven by gains in both the manufacturing and mining sectors from both domestic and foreign investors.
Indonesia’s Prompt Manufacturing Index remained in expansion territory at 51.58, while the processing industry grew 4.9 per cent last year, making it one of the key contributors to the country’s manufacturing sector growth.
In 2024, there was a surge in investment in Indonesia, reaching 1,714 trillion rupiah (S$142 billion), a 20.8 per cent jump from the previous year.
Foreign direct investment climbed to 900 trillion rupiah, up 21 per cent year on year, with Singapore maintaining its position as the country’s leading investor.
In recent years, there has been a rise in investment in the mineral sector in Indonesia, particularly in nickel smelters, driven by former president Joko Widodo’s policy banning the export of raw minerals in 2020.
Despite a decade of massive infrastructure investment, Indonesia continues to struggle to outpace the GDP growth of its regional peers, such as Vietnam and the Philippines.
Risks loom
Indonesia is grappling with declining purchasing power, a shrinking middle class and prolonged drops in sectoral productivity, clear signals of deep-rooted structural challenges within its economy.
Government spending this year is also affected by a 306 trillion rupiah budget cut under Prabowo, as funds are redirected to priority programmes, including free nutritious meals, as well as education and healthcare subsidies, which have been rolled out since the start of the year.
Indonesia’s trade outlook is clouded by supply chain disruptions, further exacerbated by the looming threat of tariffs from Trump.
Satria Sambijantoro, head of equity research at Bahana Sekuritas, emphasised that this is particularly critical for Indonesia due to its deep trade ties with China – the primary target of Trump’s tariff policies.
“For Indonesia, the Trump tariffs would directly impact the economy through both trade and financial channels,” said Sambijantoro. “Currently, Indonesia ranks 15th among the US’ largest trade-deficit partners and third in the Brics group, after China and India.” Brics is an alliance of emerging economies comprising Brazil, Russia, India, China and other nations.
He also noted: “It could affect the rupiah, especially considering that Indonesia recorded a US$17.9 billion trade surplus with the US last year.”
Cautious on rate cut
Concerns over an economic slowdown this year were echoed in a recent statement by Bank Indonesia (BI) governor Perry Warjiyo, who unexpectedly cut the benchmark interest rate by 25 basis points last month to 5.75 per cent.
Initially focused on stabilising the rupiah, BI’s policy direction has shifted as the central bank moves to support the government’s push for economic growth, which is targeted at between 4.7 and 5.5 per cent this year.
Michael Wan, senior currency analyst at MUFG, noted that while BI may have room to cut rates based on inflation alone, the primary constraint remains the rupiah’s volatility.
“The key binding constraint is certainly the volatile rupiah, with Bank Indonesia saying that it intervened to cap rupiah volatility on the back of Trump-induced moves,” he said.
Indonesia’s headline consumer price index inflation came in significantly lower than expected at 0.8 per cent year on year in January, despite a slight uptick in core inflation. The softer headline figure was largely driven by weaker utility prices, which helped offset volatility in food inflation.
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