The International Monetary Fund (IMF) in its April 2023 edition of the World Economic Outlook (WEO) report describes the world as a bit more gloomy, with world economic growth only reaching as high as 2.8%. As a result, prices of goods and services will remain high, and inflation unlikely to go down. However, the report stated that Indonesia will survive with a bright prospect.
The dismal condition of world economic growth has caused the IMF to lower several predictions, including global economic growth, in its WEO 2022 report. Previously, the IMF predicted the world’s economy to grow by 2.9%, but it later revised its prediction to 2.8% for 2023.
The gloomy condition of the global economy was caused by the inability to escape inflation pressures. Several developed countries have tight labor markets, high wage costs so that prices of goods and services do not fall quickly. Although the Central Bank has tried to increase interest rates many times, inflation rate remains high. This is one of the reasons why the IMF has raised global inflation predictions for 2023 from 6.6% to 7%.
The IMF predicts that economic growth in developed countries will remain positive at 1.3%, compared to the 2022 WEO report of 1.2%. However, predictions for developing countries is lowered from 4% to 3.9%.
According to the IMF, the growth of developing countries will be hampered by several factors, including sluggish world trade, and reduced export of developing countries. The IMF estimated the world trade volume growth to slow down to 2.4% in 2023 compared to the previous 5.1% in 2022.
Indonesia is an exception
Currently, Indonesia considered to be an exception because the share of exports in the Gross Domestic Product (GDP) is not dominant below 20%. In addition, the Indonesian economy no longer depends on the external factors. The performance of Indonesia’s main economy is currently supported by a strong local market. In addition, the share of household consumption to GDP is still more than half at around 55%. Furthermore, the end of the Covid-19 pandemic has allowed for increased mobility and economic activity, which resulted in stimulated growth and consumption.
Another supporting factor for Indonesia includes a controlled inflation rate. It is estimated that the inflation trend will not exceed Bank Indonesia’s (BI) target of 2 to 4%. Erwin Haryono, Executive Director of BI Communication Department, the government has taken several steps such as adjusting fuel prices, synergies and coordination of inflation control policies through the Central Inflation Control Team (TPIP), Regional Inflation Control Team (TPID), and the National Movement for Controlling Food Inflation (GNPIP) to maintain price stability and controlling inflation rate.
According to Haryono, the outlook for Consumer Price Index inflation and core inflation in 2023 is expected to return to 3% (1% possible deviation). “Inflation pressure in 2022 which is lower than this estimate is the reason for optimism that inflation in 2023 can be controlled and will return to target,” said Haryono.
While the current state budget deficit is below 3%, with a healthy budget the government can carry out flexible fiscal policies. On the other hand, the government has high reserves of up to IDR 314 trillion which will be used to boost growth through programs that have great leverage for the economy.
Through these several factors, the IMF is optimistic about Indonesia with bright prospects. When the growth of developing countries slowed down, on the other hand the IMF revised Indonesia’s growth upwards from the previous 4.8% to 5%.
