The Indonesian government pursued a fairly flexible macroeconomic policy in 2021-2022. Therefore, despite the challenging global economic environment, Indonesia experienced accelerated real GDP growth in 2022, which was 5.3% at the end of the year, reaching the highest rate in nine years (c 2014).
Indonesia's economy grew faster than the average growth rate in the Asia-Pacific region (4.0%), driven by higher consumption, higher spending, a substantial increase in commodity exports and higher infrastructure spending.
In 2023, the resilience of Indonesia's economy will continue, but the growth rate will slow down. Strong domestic demand (albeit more subdued than in 2022), combined with increased foreign direct and portfolio investment flows, a booming tourism sector, labor market reforms, and rising wages should also support Indonesia's economic growth in the coming years.
In the IMF's assessment, the risks to Indonesia's economy are broadly balanced. On the one hand, a faster recovery in China or an easing of global inflationary pressures could strengthen demand for Indonesia's exports. On the other hand, further tightening of global financial conditions or a global economic slowdown that would weaken the trade balance could put pressure on the Indonesian rupiah. In addition, ongoing geopolitical uncertainties could again contribute to supply chain disruptions and inflationary pressures. In this regard, Indonesia's wide-ranging reforms and long-term strategic development plans to create a favorable business environment, diversify the economy, and mitigate climate change will support economic growth and make it more sustainable.
GDP by PPP per capita in Indonesia as a whole has a positive trend, the only exception was 2020, when, under the influence of the COVID-19 pandemic, the indicator decreased by 2% compared to 2019. Starting from 2021, GDP by PPP per capita in Indonesia grew at a steady pace, and in 2022 it amounted to $14,687.1 USA, exceeding the pre-pandemic level by 17.6%. According to the IMF forecasts, in 2028 the indicator will reach 21,318.5 US dollars.
In 2022, the boom in inflation was caused by a rapid increase in food and energy prices, but the dynamics was undulating during the year with a pronounced slowdown in the second half of 2022. In the first half of 2022, the rise in inflation was mainly caused by an increase in prices of horticultural products, which was due to heavy rains that hampered the production of horticultural products; vegetable oil prices, which increased due to limited supply in the domestic market as a result of increased demand and rising world prices; Further sustained high inflation in the second half of 2022 reflects the impact of adjustments to subsidized fuel prices as well as higher global food prices and supply disruptions due to challenging climatic conditions.
Although inflation in 2022 exceeded the 2016 level for the first time, it was lower than originally forecast. The Central Bank of Indonesia tightened monetary policy in a timely manner to address inflation risks, including early adjustments to the discount rate.
Bank Indonesia also strengthened coordination with the central and regional governments. These efforts have been successful in reducing food inflation.
In 2023, inflationary pressures continued to decline, becoming more manageable. The stability and controllability of inflation is also supported by the fixed interest rate at 5.75% until the end of 2023.