Indonesia economic outlook 2023

Richard Burrage
Oct 13, 2023

Indonesia Economic Outlook 2023 explores the five reasons that Indonesia will prosper in the next decade.

Indonesia’s economy is on the right track. The Q2 2023 GDP data shows that it grew by 5% from the same quarter last year. Indonesia has not only bounced back to the pre-pandemic levels, but also surpassed them. As businesses grow, so does the size of workforce they can employ. This enables Indonesia’s substantial labor force to further contribute to this growth. The continuously increasing young and urban population also plays a significant role in this process.

5-minute read

Kenny Tirtawirya

Cimigo believes Indonesia’s economy will keep growing over the next ten years. There are five catalysts that we have identified that will propel this growth.

The Indonesia economic outlook 2023 report explores the five reasons that Indonesia will prosper in the next decade:

  1. Demographic edge: huge workforce with low dependency ratio.
  2. GDP growth rate has recovered to pre-pandemic level with a positive trend.
  3. Positive business sentiments and increased investment.
  4. The continuous recovery of retail.
  5. A flourishing digital economy and e-commerce.

Download the report here

1. Demogroaghic edge: A huge workforce with a low dependency ratio

Indonesia is a vast country, home to nearly 300 million people, with a positive growth rate of 1.13%. Approximately half of them are working-age population. A low dependency ratio of 0.6 per employed person indicates a substantial workforce supply, with the majority being relatively young (44% are aged 20 – 39 years old).

Productive age and urban population in Indonesia

Furthermore, there is a continuous urbanization of individuals in their productive age years. Therefore, the next challenge is to prepare them with the necessary qualifications and skills.

2. Indonesia economic outlook 2023: GDP growth rate has recovered to a positive trend

In Q2 of 2023, Indonesia enjoys a GDP growth of 5.2% compared to the same quarter in 2022. Industrial production grows by 4.9% and manufacturing Purchasing Managers Index (PMI) increases by 5% (Jun ’23 vs Jun ’22). Investment from outside of Indonesia is increasing, with a 47% increase in foreign direct investment disbursements. However, the trade surplus has suffered due to decrease in total value of exports and imports by 18% and 6% respectively.

Indonesian economic performance

Despite this setback, it is estimated that Indonesia will continue the positive trend overall and experience an approximate 5% increase in GDP in 2024.

Download the report here

Indonesia economic and consumer progress

As of the full year 2022, Indonesia, with a GDP of US$1.31 trillion, is ranked as the #16 largest economy in the world. However, Indonesia is still a developing nation. The GDP per capita is merely US$4,783, which is significantly lower than some other Southeast Asian countries such as Singapore, Malaysia, and Thailand. Only 49% of adults aged 18 years old or older have bank accounts, despite a 78% internet penetration rate. Nevertheless, Indonesia’s consumer market remains attractive to advertisers, who spend US$19 billion to reach them in 2022.

Recent development in Indonesian economy

Top contributing sectors to Indonesia’s GDP

In terms of contribution, the top contributors are manufacturing, agriculture, mining, and the trade sector. Export values of the first three sectors have been flourishing over the past two years. Notably, palm oil and coffee are among Indonesia’s top exported goods. Despite the decline compared to the same period in 2022, Indonesia is actively striving to achieve its target trade surplus for 2023, which is set at US$38.5 billion. A striking example of this effort is the 71% increase in total mining exports, driven by coal, copper ores, and lignite.

Growth of GDP by sector in Indonesia

In addition, there are notable gainers: transportation & warehousing and accommodation & F&B sectors. The number of vehicles operating in Indonesia is steadily increasing, and national motor vehicle production has also grown by 8.3%. Regarding the latter sector, there has been an increase in the number of visits by both international and domestic tourists to Indonesia over the past year. International tourist arrivals have surged by 250%, while domestic tourist visits have increased by 13%. The occupancy rate of starred hotels is at 47% with 3.75% growth, primarily driven by 4-stars and 5-stars hotels. People are choosing Indonesia as their holiday destination, and it is not limited to Bali alone. Interestingly, Riau and Jambi have also experienced over 5% growth in holiday trips.

3.  Positive business sentiment and increased investment

Indonesia entrepreneurs are displaying growing business confidence as indicated by an 18% increase of Business Tendency Index (BTI) during Q2 2023 compared to the same period last year. Sources of investment are relatively balanced between domestic and international origins. In addition to West Java, Central Sulawesi is also one of the provinces with a significant amount of investment.

Increase in Indonesia Business Tendency Index

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4. Indonesia economic outlook 2023: Continuous recovery of retail

The retail sector continues to recover, now at US$455 billion in sales value. This figure is now higher than the pre-COVID condition. However, the growth rate remains modest with only 3% from 2021 to 2022, which is slightly below the 5.51% inflation rate for the same period.

Indonesia economic outlook 2023 retail sales value

5. Flourishing digital economy and e-commerce

Businesses are going digital and those who have done so, are continuing to do it. From 2021 to 2022, there was a 22% increase of Gross Merchandise Value (GMV) in the overall digital economy, a clear indication that having digital presence yields both short-term and long-term benefits for businesses. 63% of Indonesians are making online purchases at least once a week, ranking Indonesia 6th in the world in this regard. Preferred e-commerce platforms are currently Shopee and Tokopedia, but we anticipate the rise of TikTok shop in the near future.

Indonesia economic outlook 2023 and digital economy

Download the report here

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