Indonesia’s GDP grew by 5.11% yearly in Q1, surpassing forecasts due to heavy state spending on elections. Even though this momentum has exceeded the 5% prediction of economists, global forces and local monetary policies pose obstacles to its continuation.
Analysts caution that these increases are only transitory due to impending worries about US interest rates, tensions in the Middle East, and Indonesia’s recent interest rate hikes, which have increased by 275 basis points since mid-2022.
In Q1, government spending increased by about 20% each year. Meanwhile, growth in investments slowed to 3.79% from 5.02% in the previous quarter.
According to Capital Economics, demand will expand by 4.5% in 2024 due to high interest rates and uncertainty throughout the world. DBS Bank, on the other hand, projects 5% growth, accounting for Bank Indonesia’s emphasis on stability in the face of possible exchange rate volatility.
After Defence Minister Prabowo Subianto won the presidential election, economic policies will likely remain the same when he takes office in October and will be in line with his plans. Although the first quarter growth rate was lower than anticipated, the government raised its growth target for 2024 from 5.05% to 5.2%.
