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Indonesia: A bright spot in a dark global economy
There are two ways to moderate global inflation pressure besides containing the pandemic: first, increasing relative productivity and, second, enhancing domestic supply.
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Back to normal: People throng a shopping mall in Surabaya on Oct. 13 to watch a rock climbing competition for young people. As the government has loosened COVID-19 restrictions, shopping malls and other public facilities have resumed normal activities. (AFP/Juni Kriswanto)
T
he world economy is entering a dark zone. This is seen from the downgrading of the annual 2022 economic growth estimate by the World Bank from 4.1 percent to 3.2 percent. Two big emerging countries, previously the pillars of the world's economic growth, are seeing their growth estimates revised down as well, India from 7.5 percent in June to 6.5 percent in October and China from 4.3 to 2.8 percent.
Nevertheless, Indonesia's annual economic growth of 3.7 percent in 2021 is estimated to rise to 5.1 percent in 2022. This World Bank estimate shows that Indonesia is one of the few emerging countries to serve as a world economic growth driver in 2022. It is happening amid a perfect storm in aggregate demand due to the global pandemic and aggregate supply due to worldwide shortages of food, energy and integrated circuits, as well as interrupted supply chains.
Statistics Indonesia (BPS) reported on Monday that Indonesia’s economy grew 5.72 percent year on year (yoy) in the third quarter. This growth is remarkable because Indonesia’s growth has consistently increased since its first- and second-quarter achievements, particularly amid the recent perfect economic storm.
Bank Indonesia (BI) reported that the average annual inflation rate in the second quarter was 3.79 percent and rose to 5.19 percent in the third quarter. The economic growth and inflation rate pattern in the third quarter prove that Indonesia's economy is still a bright spot in the world economy.
Two indicators support the impressive third quarter growth. The Consumer Confidence Index (CCI) denotes the demand side, and Purchasing Managers’ Index (PMI) indicates the supply side. Indonesia’s CCI increased significantly in the second quarter, from 113.1 in April to 128.9 in May, due to an easing of the pandemic and high seasonal demand during the Idul Fitri celebrations. In the second quarter of 2022, Indonesia's household consumption grew above total economic growth at 5.51 percent and 5.44 percent for the first time amid the pandemic.
Household consumption is a game changer because it covers more than half the gross domestic product (GDP). When the CCI increased in the second quarter, the PMI decreased. Yet, in this third quarter, except in September, the CCI rose from 123.2 in July to 124.72 in August. The PMI kept climbing from 51.3 in July to 51.7 in August and 53.7 in September.
This trend showed that for the first time amid the pandemic, Indonesia experienced simultaneous upward trends in CCI and PMI. BPS confirmed that transportation and warehousing remained the drivers of Indonesia's economic growth.
