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publication June 6, 2018

June 2018 Indonesia Economic Quarterly: Learning more, growing faster

  • The Indonesian economy continued to expand at a robust pace in Q1 of 2018, lifted by strong investment. Real GDP growth edged down to 5.1 percent in Q1 2018, slightly less than the 5.2 percent in Q4 2017.
  • Higher global commodity prices spurred stronger investment, especially in machine, equipment, and vehicles. As a result, gross capital fixed formation grew the fastest in more than 5 years. Higher growth in machinery investment also led to a further pickup in imports, which grew more than twice the pace of exports, and acted as a drag on growth.
  • The current account deficit narrowed in Q1, as the services trade deficit shrank sharply. The current account deficit narrowed to 2.1 percent of GDP in Q1, from 2.3 percent of GDP in Q4 of last year, partly on stronger foreign tourist arrivals.
  • Indonesia’s economic outlook continues to be positive, although more measured. As global economic growth is projected to slow and trade flows moderate from recent highs, Indonesia’s GDP growth is projected to still rise with stronger domestic demand from 5.1 percent in 2017 to 5.2 percent in 2018.
  • Risks to the outlook are heavily tilted to the downside amid the tightening monetary conditions and bouts of financial volatility centered around other more vulnerable emerging economies.
  • This edition also discusses how 15 years of education reforms have helped to improve education outcomes and human capital in Indonesia, also what challenges remain. Schooling attainment has grown significantly, but student learning remains below the levels of other countries in the region, compromising Indonesia’s competitiveness in the global economy.
  • Further actions are urgently needed to stop a growing inequality in student results and to take advantage of the opportunity generated by the many teachers retiring in the next decade. Key recommendations include:
    • define and enforce qualification criteria to be met by every classroom teacher
    • complement existing education financing mechanisms with a targeted, performance-based transfer for lagging schools and districts
    • launch a national education quality campaign to generate public awareness and pressure for effective action to improve student learning.