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publication September 20, 2018

September 2018 Indonesia Economic Quarterly: Urbanization for All

  • Private and government consumption accelerated thanks to higher subsidy and personnel spending, as well as a pick-up in credit growth, stable inflation and strong job markets.
  • The current account deficit widened to a four-quarter rolling sum of 2.3 percent of GDP through the second quarter, the largest in three years. This was contributed by rising crude oil prices and continued growth in equipment investment, leading total nominal imports growing faster than exports, and a consequent narrowing of the goods trade surplus.
  • The Rupiah depreciated 4.8 percent against the U.S. dollar in the second quarter, with an additional 2.7 percent in July and August. .
  • While less favorable than before due to the heightened global uncertainty, . However, downside risks have increased. Economic growth is forecast to reach 5.2 percent this year and in 2019, and gradually strengthen to 5.3 percent in 2020.
  • Risks to Indonesia’s growth outlook are strongly tilted to the downside amid possible contagion effects from volatility associated with Argentina and Turkey, and stronger economic conditions and inflation in the United States. Escalating protectionism also poses strong risks to Indonesia either through slower growth of the export sector or negative spillovers from slower regional growth – in part through weaker commodity prices.
  • This edition also presents the challenges and opportunities Indonesia faces in leveraging its urbanization to generate greater prosperity and inclusion within the country. To ensure that urbanization can work for all Indonesians, central and local governments need to work together to enact policies that achieve three objectives:
    • converge and expand the delivery of basic services to ensure that all Indonesians can enjoy good quality education, health, water and sanitation services, thereby reducing the inequality of opportunity;
    • connect and integrate within and between places, encompassing investing in improved transport networks, and policies to increase the supply of affordable urban housing. Integration promotes mobility and mobility generates inclusiveness.
    • customize and target people and places that are likely to be left behind, such as those with disabilities or other groups that tend to be disadvantaged, as well as lagging regions of the country.