2020 Economic Outlook: Now or never, chance to break out of 5% trap

Joseph Incalcaterra
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PREMIUM

Hong Kong / Fri, December 20, 2019 / 12:36 pm

2020 Economic Outlook: Now or never, chance to break out of 5% trap

Domestic business sentiment is depressed given the lack of growth drivers for the economy, and infrastructure spending has slowed in 2019. All in all, Indonesia’s growth is likely to hover around 5 percent in 2020. The 5 percent trap will persist for now. (JP/Ricky Yudhistira)

Since 2014, the Indonesian economy has been stuck in a 5 percent trap. In a good year, growth comes in at 5.2 percent. In a bad year, 4.9 percent. While these numbers are respectable from a global perspective —including for emerging markets — this performance is lackluster. Indonesia can do far better. What gives? Growth is simply increasingly restrained by a persistent current account deficit — in part a result of lower manufacturing intensity over the years. Consider that in 2000, the manufacturing sector accounted for approximately 28 percent of gross domestic product (GDP). By 2019, this number has fallen to 20 percent. The reduction in export earnings has weighed on the country’s capacity to save and finance its own investment needs. While a current account deficit is not necessarily a problem for a developing economy with colossal investment requ...