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Indonesia’s economy is the largest in Southeast Asia and is considered an emerging market economy. The country is a lower-middle-income nation. It is a member of the Group of Twenty (G20) intergovernmental forum that works together to address issues surrounding the global economy.
The Indonesian economy mostly depends on its domestic market and government budget spending, along with its state-owned enterprises.
Since its independence in 1945, the country’s economic growth has faced numerous disruptions due to political instability, high levels of regulation, and dependence on oil prices. In the 1990s, government corruption was at its highest, leading to further economic distortions. However, following the 1997 Asian financial crisis, the government took control of private-sector assets, which were later sold for privatisation.
In 2012, Indonesia outperformed India to become the second-fastest-growing economy in the G20, only behind China.
Due to the coronavirus pandemic, the country recorded its first recession in 2020 after more than two decades of consistent growth. The economy contracted by 2.07% that year.
Indonesia economy: GDP Annual Growth Rate (in%)
In 2021 the economy recovered, with 3.69% GDP growth, led by ease of containment measures, strong government support and as stronger commodity prices that pushed exports to record highs. A year later growth was back at pre-pandemic levels (5,3% in 2022 and 5.0% in 2023).
For 2024 and 2025, the International Monetary Fund (IMF) estimates Indonesia to grow 5.0% and 5.1%, respectively.
Currency and Central Bank
Indonesia’s official currency is the rupiah, whose name comes from the Sanskrit word rupyakam, meaning silver. It is divided into 100 sen, but due to high inflation, all coins and banknotes in sen have been rendered obsolete.
Bank Indonesia (BI) serves as the country’s central bank and is currently headed by its governor, Perry Warjiyo. The bank was founded in 1953 after the private Dutch bank, De Javasche Bank or Bank of Java, was nationalized three years post following the country’s independence from the Netherlands.
Indonesia Inflation (in %)
In October 2023, Bank Indonesia surprisingly hiked its rate by 25 basis points to 6% to counter inflation and support the stability of its currency. The central bank’s inflation target is 2-4%.
Inflation in Indonesia is expected at 2.6% in 2024 and the coming year.
Industry and Trade
The country has a young population of 279.965 million with a workforce of about 137 million people. Over the years, Indonesia has transformed from being an agricultural economy into a more balanced one, detaching from its previous dependency on primary exports.
Indonesia’s agricultural sector comprises about 12% of the country’s GDP while providing employment to 29% of the labor force. It is the second-largest producer of natural rubber globally. Other major agricultural products include rice, sugarcane, coffee, tea, tobacco, palm oil, coconuts, and spices.
Meanwhile, the industrial sector contributes to 41.43% of the GDP and employs 21.76% of the workforce. Products manufactured in Indonesia include textiles, cement, chemical fertilizers, electronic products, rubber tyres, clothing, and shoes.
Indonesia’s service sector has grown to be the biggest contributor to the country’s GDP at 41.79% and employs 49.25% of the workforce. Banking and tourism are two of the largest service sectors in the country.
Indonesia Balance of Trade
The country ranks 27th in total exports globally. Its main export products are coal briquettes, palm oil, petroleum gas, automobiles, and gold. Indonesia holds the world’s largest nickel reserves and is also a major producer of several other key metals like bauxites, tin and nickel ore. It is also the world’s biggest producer and exporter of palm oil and ranks as the world’s eighth largest LNG exporter.
China, the US, Japan, Singapore, and India are Indonesia’s leading export partners.
Meanwhile, the Indonesian economy is also ranked 30th in total imports, with refined petroleum, crude petroleum, vehicle parts, telephones, and petroleum gas as Indonesia’s main import products. The country’s main import partners are China, Singapore, Japan, Thailand, and the US.
Stock Exchanges and Capital Markets
The Indonesia Stock Exchange was formed when the Jakarta Stock Exchange and the Surabaya Stock Exchange merged in 2007 and has 825 listed companies, with more than 10.3 million total stock investors, as of 2022.
The Jakarta Composite Index (JCI) and the Jakarta Islamic Index (JII) are the two primary stock market indices used to measure the performance of the Indonesia Stock Exchange. As of June 2023, the Indonesia Stock Exchange is ranked 11th in Asia-Pacific by market cap.
Bond Market
The bond market in Indonesia has experienced steady growth over the past few years. Currently, it offers a diverse selection of debt instruments that cater to both local and foreign investors. Bonds may come in the form of the Bank Indonesia-issued Certificate of Central Bank or Sertifikat Bank Indonesia (SBI), government bonds or government debt securities, and corporate bonds.
Indonesia Bonds have fared better than most emerging market bonds in 2022. The current yield on Indonesia 10-year government bonds is hovering around 6.67%, whereas Bank Indonesia’s key interest rate stands at 5.6%.
Real Estate Market
Indonesia is one of the cheapest property markets in Southeast Asia. Bustling real estate markets like Jakarta and Bali command higher prices, while suburban locations like Malang, Makkasar and Bandung witness a broad range of housing prices.
Indonesia house prices climbed 2% year on year in the September 2023 quarter, after a 1.9% increase in the previous quarter.
Indonesia Housing Index (in %)
The Indonesian real estate market is expected to register a CAGR of 5.82% during 2023-2028, reaching $81.24 bn. Researcher Morder Intelligence attributes this to the country’s favourable demographic composition, increasing urbanization, rising per capita income, a significant young population emerging as first-time homebuyers and government initiatives.
Affordable housing projects in Indonesia, which are supported by the government, foreign investors, and organisations such as the World Bank, are expected to boost the real estate market going forward. One important government initative is the ‘One Million Houses’ (OMH) programme launched in 2015, which aims to build at least one million houses per year.
Source of graphics: tradingeconomics.com
