Indonesia Economic Forecast

After growing faster in Q2 than in Q1 on improving domestic activity year on year, GDP is likely expanding more slowly in Q3 as the external sector should be weighing on overall growth; annual merchandise exports fell more in July–August than in Q2 amid sluggish foreign demand. In the same period, retail sales growth eased from April–June, hinting at cooling private spending. More positively, conditions in the manufacturing sector improved at a stronger pace in August, with output, new orders and employment strengthening. In other news, Indonesia’s meteorology agency warned in September that this year’s rainy season will be delayed due to the El Niño weather event, boding ill for agricultural output; the ongoing hot and dry spell has already disrupted rice output and pushed prices up. In response, authorities pledged USD 521 million in social aid for low-income households through November.

Inflation rose to 3.3% in August (July: 3.1%), driven by stronger price growth for food and transport. Our panel anticipates 2023 inflation to average below last year’s level on tighter monetary policy and lower commodity prices year on year. A stronger-than-expected El Niño provoking food and energy price spikes poses an upside risk to prices.