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publication December 11, 2019

December 2019 Indonesia Economic Quarterly: Investing in People

  • In light of challenging global economic conditions and a substantial deterioration of its terms-of-trade, Indonesia’s economic growth decelerated to 5.0 percent in the third quarter of 2019, from 5.1 percent in the second quarter.
  • Domestic drivers of growth slowed. Fixed investment growth weakened further in the third quarter, given the significant decline in commodity prices and political uncertainty. Total consumption growth also slowed, with government consumption decelerating markedly. The weakness in domestic demand was mirrored by a large contraction of import volumes, which together with flat exports meant that net exports made a large contribution to growth.
  • The current account deficit narrowed to 2.9 percent of GDP for the four quarters through Q3 2019, compared to 3.1 percent in the first two quarters. Capital inflows rose, leading to a larger surplus in the financial account.
  • Indonesia’s GDP growth is projected to be 5.0 percent in 2019 picking up to 5.1 percent in 2020, predicated on the gradual tapering of international trade tensions, reduced domestic political uncertainty, lower borrowing costs, and improved business sentiment due to proposed economic reforms.
  • Downside risks to Indonesia’s growth outlook continue to be severe with protracted trade tensions posing additional risks to commodity prices, international trade flows, global business sentiment and investment growth, and China’s growth outlook.
  • This edition also discusses the elements a “future-ready” social protection system should include to provide adequate protection and facilitate sustained economic growth that is more widely shared and equitable.
  • Current social protection programs form a solid base on which Indonesia can build a system that addresses the risks and challenges that the future is likely to bring. These programs would need to evolve and adapt to emerging demographic, technological and environmental trends.
  • The future social protection system should be accessible to all Indonesians regardless of where and how they make a living, and should extend protection to the large and growing share of elderly poor and people with disabilities.
  • To achieve this, the Government could consider a system that provides a minimum level of protection through all stages of a person’s natural life. The guaranteed minimum can then be complemented with a coherent set of social insurance programs that protect family incomes when earners reach old age, find themselves ill or without a job.