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Looking out for Indonesia's economic challenges throughout 2024
A two-round presidential election may also prolong the period of wait-and-see behavior among economic players, particularly in the domestic investment sector.
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Gap in the market: An employee examines rupiah bills at a cash storage center in Plaza Mandiri, Jakarta, on Sept. 8, 2023, before their distribution to automated teller machines across the city. (Antara/M Risyal Hidayat)
We are now in the second month of 2024 and overall, the global and domestic economic conditions appear to be quite positive.
This is evident from the release of the World Economic Outlook by the International Monetary Fund (IMF) on Jan. 30, 2024. They estimated that global economic growth in 2024 would be 0.2 percent higher year-on-year (yoy) than their previous forecast in October 2023, with expectations of reaching 3.1 percent yoy throughout 2024 and 3.2 percent yoy thereafter in 2025. At the same time, the IMF also projected that Indonesia's economic growth could reach 5 percent in both 2024 and 2025.
However, various economic challenges this year and beyond still appear significant, with some of them yet to be overcome in the current year. Nevertheless, with the hope that these challenges can be addressed, we also aspire for the global and Indonesian economies to grow at higher levels than before.
We have identified several critical factors that require attention and may pose potential threats to domestic economic development this year. A detailed analysis highlights that the initial two concerns emanate from the domestic political landscape, specifically the rising domestic political tension and the potential impact of a new leader with a differing perspective from the current leadership.
First, though there is a looming possibility of heightened domestic political tension, there is a reduced risk of direct conflict. This is attributed to the influence of millennials and Generation Z, often referred to as the “mager (lazy movement) generation", constituting a significant 56.5 percent of voters in the recent elections. Consequently, we anticipate that direct conflicts among supporters of different candidates at the grassroots level may be avoided.
Moreover, the approaches taken by the candidates are likely to differ significantly, mitigating the risk of physical and open confrontations akin to previous elections. As a result, the potential for street clashes, campaign-related chaos and an escalation of domestic political tension is expected to be limited. This, in turn, is projected to have a positive impact on domestic investment sectors. Additionally, while we acknowledge the persistence of campaign funding in society, we hope it will stimulate stronger public spending throughout 2024.
Second, despite the three current presidential candidates positioning themselves as opposition, incumbent or preventer, a closer examination of their mission statements reveals a complementary nature. Even though one candidate opposes the relocation of the capital from Jakarta to Nusantara in East Kalimantan, we observe that each candidate's goals are commendable, addressing potential shortcomings while remaining aligned with the current administration of President Joko “Jokowi” Widodo. Therefore, concerns regarding fiscal approaches or other economic-related matters from the current set of candidates are seen as likely to support a conducive economic growth trajectory in the future.
