Jakarta, December 16, 2024 - Indonesia is likely to achieve 5 percent growth this year, according to the latest edition of Indonesia Economic Prospects report. The World Bank's bi-annual flagship report on the Indonesian economy, released today, also documents robust domestic demand and a recovering service sector, the main driver of the economy.
According to the report, private consumption and government spending were strong in 2024. In contrast, the performance of the manufacturing sector was mixed. Headline inflation gradually decreased to 1.5 percent in November, thanks to a rebound in agricultural production and lower global oil prices. Unemployment declined and labor force participation increased, especially among women.
"Global monetary easing and stable macro conditions have accelerated capital inflows, bolstered foreign currency reserves, and relieved pressures on the rupiah. Indonesia's banking sector prudential indicators remain sound, but there remains room to improve financial sector depth," said World Bank Director for Indonesia and Timor-Leste Carolyn Turk.
The government plans to achieve high-income status by 2045, partly by boosting private sector investment over the next five years. It also plans to provide fiscal stimulus to priority programs, including several social protection initiatives. Productivity-boosting structural reforms-including financial deepening, trade policy reforms, and investment openness-could enhance the impact of this effort, according to the report.
Indonesia's long-term growth and job creation are closely linked to the progress it achieves in making the economy more competitive. Doing so requires continued investment in human capital; better social protection; greater domestic revenue mobilization; and improvements in bureaucratic efficiency and regulatory enforcement, to attract investment in high-value-added sectors.
"Indonesia's public capital stock-including assets in transport, utilities, and health and education facilities and the Human Capital Index, which covers health, nutrition, and education outcomes-lags its regional and structural peers," said Wael Mansour, World Bank Senior Economist and one of the Report's authors. "Closing these gaps could enhance productivity and support the sustained growth required to reach high-income status by 2045."
The report includes a special section on Indonesia's tax performance that examines tax policy, tax compliance, and the motivation and willingness of Indonesians to pay taxes, as well as structural drivers behind the ongoing domestic revenue mobilization. It provides a set of recommendations for enhancing domestic revenue collection and funding the country's development ambitions.
Indonesia Economic Prospects is supported by funding from the Australian Department of Foreign Affairs and Trade.
