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RI growth to moderate despite China reopening
Indonesia and other developing East Asia Pacific (EAP) countries are projected to moderate growth despite China's reopening bringing momentum for the region to attain higher growth.
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he reopening of China's economy is forecasted to accelerate growth in developing East Asia Pacific (EAP), but the World Bank said most developing countries in the region, including Indonesia, was expected to moderate instead.
The World Bank said the region’s strong growth could be held back this year due to slowing global growth, elevated commodity prices and tightening financial conditions in response to persistent inflation, according to the World Bank’s East Asia and Pacific April 2023 Economic Update.
The growth in EAP is forecasted to accelerate to 5.1 percent in 2023 from 3.5 percent in 2022, following China’s reopening that allows its economy to rebound to 5.1 percent this year from 3 percent last year.
However, growth in Indonesia is projected to slide to 4.9 percent this year, much lower than the 5.3 percent it achieved last year. The World Bank’s recent 2023 projection to Indonesia is also much lower than it estimated back in October at 5.1 percent.
This is in line with the growth for the region without China included that is projected to moderate to 4.9 percent from 5.8 percent in 2022, the same data shows.
“Most major economies of East Asia and the Pacific have come through the difficulties of the pandemic but must now navigate a changed global landscape,” said World Bank East Asia and Pacific Vice President Manuela V. Ferro in a press statement on Friday.
“To regain momentum, there is work left to do to boost innovation, productivity, and to set the foundations for a greener recovery,” she added.
Read also: Trade policies inhibit investment in Indonesia: World Bank
After the Asian Financial Crisis (AFC) back in 1997 to 1998, EAP has transformed into the most crisis-resilient region in the world as can be seen through how it navigated through the Great Recession and the COVID pandemic, the World Bank said.
The World Bank attributed that achievement to structural reforms done by countries in the region, but it also noted productivity growth and the pace of structural reforms has slowed in recent years, resulting in the region’s ability to catch up with its higher income peers to stall.
“These trends have coincided with a shift in the pattern of structural change,” reads the report, addressing the significant growth in manufacturing during the AFC and the Great Depression.
The shift of labor out of agriculture has been slowing down after the early 2000s for Indonesia and workers moved into trade and construction services which has low productivity compared to manufacturing and business services.
Chief economist at publicly listed Permata Bank, Josua Pardede, blamed this situation on the structural problem of the manufacturing industry, namely in terms of regulation and incentives as well as human capital.
“To become a global production hub, Indonesia still faces many obstacles. Inefficient logistics costs for instance,” Josua told The Jakarta Post on Friday, adding, “the majority of human resources are unskilled workers […] and there are barely any training facilities.”
The World Bank argued that deeper reforms, more proactive management and international cooperation are needed in general due to changing geopolitics which turn the tide into protectionism, trade divisions and policy uncertainty.
Read also: No country can expect investment 'red carpet'
On the surface, the restrictions on bilateral trade imposed by the United States and China could divert trade to third country competitors as experienced by Vietnam, Thailand and Indonesia, whose shares of US imports increased amid a decline in China over the past five years.
But this tension also brought about several problems that disrupted trade and the global supply chain through the form of protectionism and bilateral restrictions, among many others.
“A country like Malaysia is better off having trade agreements with both China and the US rather than being left out of any agreement or being part of an exclusive trade bloc.” The World Bank suggested in the report as a way to deal with it.
So far, Indonesia joined the China-led Regional Comprehensive Economic Partnership (RCEP) and there has been some talk about joining the Indo-Pacific Economic Framework (IPEF), another US-led agreement, which happened to be nothing of a traditional trade agreement sort.
“The more trade agreements Indonesia is in, the better, […] because it will bring in investment and open new markets,” said Josua.
Josua said Indonesia’s free and active foreign policy principle would bring in more to the table and no one could change that for any reason whatsoever since it was set in stone in the country’s constitution.
“The possibility of [next year’s new regime] to change direction is relatively small.”
