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Economic Overview

Indonesia is seen as a future economic giant. It is the largest economy in Southeast Asia and the world's seventh by purchasing power parity (IMF). In 2023, the real GDP growth closely approached the approximately 5% average annual rate attained since 2000. By the end of the third quarter, the manufacturing sector sustained its expansion, albeit at a slightly moderated yet robust pace, while the hotel occupancy rate from January to July surpassed pre-pandemic levels. The country is anticipated to sustain rapid and stable growth throughout the projection period. Improved labour market conditions, reduced inflation rates, and enhanced investor sentiment will bolster both consumption and investment, counterbalancing the challenges posed by a subdued global trade environment. Moreover, the tourism sector is expected to witness ongoing recovery, with increasing arrivals and average expenditures contributing positively to economic dynamics. For 2024 and 2025, the OECD forecasts a growth rate of 4.9% and 5.2% of GDP, respectively.

After experiencing a widening of the budget deficit during the pandemic, authorities have intensified fiscal consolidation efforts since 2022. The IMF estimated the government’s budget deficit at 2.2% in 2023; while the 2024 budget aims for a deficit of 2.3% of GDP, with a commitment to maintaining a neutral fiscal stance in the foreseeable future. Public debt has shown a significant improvement since the Asian Financial Crisis in 1998 (it reached up to 150% of GDP), and stood at 39% of GDP as of 2023. The IMF expects the debt ratio to further decrease to 38.2% by 2025, although still above the 2019 level of 30.6%. The impact of Bank Indonesia's previous six-step increase of the policy rate is becoming more evident, as inflation (at 3.6% in 2023) now aligns within the target range (3.0% consumer price inflation with a ±1% corridor). Nevertheless, the Rupiah's depreciation amid rising global uncertainty prompted the central bank to implement another policy rate hike in October. Given current assumptions in commodities markets and barring escalation of global tensions, Bank Indonesia is poised to execute the first rate cut around mid-2024. The IMF expects the inflation rate to hover around 2.5% over the forecast horizon.

The number of unemployed persons has fallen below 8 million and the jobless rate stood at 5.3% in 2023 with a stable outlook for the near future. Indonesia has achieved enormous gains in poverty reduction, cutting the poverty rate by more than half since 1999, to approximately 9.5% of the population in 2022. While the average GDP per person (PPP) was estimated at USD 15,834 in 2023 by the IMF, the country has still one of the fastest-rising inequality rates in the East Asia region according to World Bank.

 
Main Indicators 2023 (E)2024 (E)2025 (E)2026 (E)2027 (E)
GDP (billions USD) 1,371.171,402.591,492.621,614.871,743.58
GDP (Constant Prices, Annual % Change) 5.05.05.15.15.1
GDP per Capita (USD) 4,9204,9815,2485,6236,015
General Government Balance (in % of GDP) -1.6-2.6-2.5-2.5-2.4
General Government Gross Debt (in % of GDP) 39.640.540.740.640.3
Inflation Rate (%) 3.72.52.52.52.5
Unemployment Rate (% of the Labour Force) 5.35.25.15.15.1
Current Account (billions USD) -2.14-14.71-17.85-23.08-24.51
Current Account (in % of GDP) -0.2-1.0-1.2-1.4-1.4

Source: IMF – World Economic Outlook Database , October 2021

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

Indonesia is a market economy with abundant natural resources, a young, large and burgeoning population (279 million), a labour force of 137.2 million people in 2022, and political stability. The country changed from being an economy that was highly dependent on agriculture into a more balanced economy which is lessening its traditional dependency on primary exports. The agricultural sector contributes to 12.4% of the country’s GDP and employs 29% of the active population (World Bank, latest data available). Indonesia is the second-largest natural rubber producer in the world. Other major crops include rice, sugarcane, coffee, tea, tobacco, palm oil, coconuts and spices. Besides, the country is the world's biggest nickel ore producer and has become a major exporter of stainless steel. Indonesian land area used for agriculture has been growing and is currently around 30%. This is mainly due to the establishment of large-scale plantations - in particular for palm oil production (second-largest export). According to data from FAO, 2023 paddy production was estimated at a below‑average level of 53.3 million tonnes, while maize crop production hit 21.5 million tonnes as large sowings driven by strong demand by the poultry industry almost entirely offset reduced yields due to dryness.

Industry contributed approximately to 41.4% of GDP and employed over 22% of the labour force in 2022 (World Bank). The Indonesian industrial sector encompasses a diverse range of industries contributing significantly to the country's economy. Key sectors include manufacturing, which encompasses textile and garment production, automotive manufacturing, and electronics assembly, with notable hubs in cities like Jakarta, Surabaya, and Bandung. The mining industry, particularly in coal, palm oil, and natural gas extraction, remains a crucial pillar of Indonesia's industrial landscape, driving export revenues. Moreover, the country is witnessing the emergence of renewable energy as an increasingly important sector, with investments in solar, wind, and hydroelectric power projects aimed at diversifying the energy mix and reducing dependence on fossil fuels. Infrastructure development and construction also play pivotal roles in Indonesia's industrial growth, spurred by ongoing urbanization and investment in transportation networks. Additionally, technology-driven sectors such as information technology (IT) and telecommunications are experiencing rapid expansion, fueled by a growing digital economy and increasing connectivity.

The service sector contributes to 41.8% of the GDP and employs around 49% of the active population (World Bank). Key sectors include tourism, which capitalizes on Indonesia's rich cultural heritage and natural landscapes, drawing millions of visitors annually (as of November, the number of foreign tourist arrivals in 2023 reached 10.4 million, an increase of 110.86% as compared to the same period one year earlier), finance, telecommunications, and retail, which have historically been significant contributors to Indonesia's GDP. With the rise of technology and digitalization, emerging sectors such as e-commerce, fintech, and digital services are gaining momentum, reflecting the country's growing connectivity and innovation landscape. Additionally, Indonesia's vast archipelago and rich cultural heritage foster opportunities in hospitality, entertainment, and creative industries.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 29.0 21.8 49.3
Value Added (in % of GDP) 12.4 41.4 41.8
Value Added (Annual % Change) 2.3 4.1 6.5

Source: World Bank - Latest available data.

 
Monetary Indicators 20162017201820192020
Indonesian Rupiah (IDR) - Average Annual Exchange Rate For 1 USD 13,308.3313,380.8714,236.9414,147.7014,582.20

Source: World Bank - Latest available data.

 

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Foreign Trade

Indonesia is open to foreign trade, which represents around 45% of its GDP (World Bank, latest data available). The country’s main exports include coal, briquettes, ovoids and similar solid fuels (16.0%); palm oil and its fractions, whether or not refined (9.5%); ferro-alloys (4.7%); petroleum gas and other gaseous hydrocarbons (3.4%); and copper ores and concentrates (3.2%); whereas imports are led by petroleum oils (9.9%); petroleum crude (4.8%); telephone sets (2.8%); petroleum gas and other gaseous hydrocarbons (2.1%); and parts and accessories for tractors and motor vehicles (1.7% - data Comtrade for 2022). Indonesia became the world's largest exporter of thermal coal used in power stations in 2019 and has two major customers, China and India, the two largest coal importers worldwide.

China remained Indonesia's largest trading partner in 2022, buying up 22.6% of India’s exports, followed by the United States (9.7%), Japan (8.5%), India (8%), and Malaysia (5.3%). In the same year, the main suppliers were China (28.5%), Singapore (8.2%); Japan (7.2%), Malaysia (5.3%), and South Korea (4.9% - data Comtrade). In 2020 Indonesia signed the Regional Comprehensive Economic Partnership (RCEP) with 14 other Indo-Pacific countries. This free trade agreement is the largest trade deal in history, covering 30% of the global economy. It includes the Association of Southeast Asian Nations (ASEAN: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) and ASEAN’s free trade agreement partners (Australia, China, India, Japan, New Zealand and the Republic of Korea). The RCEP covers goods, services, investment, economic and technical cooperation. It also creates new rules for electronic commerce, intellectual property, government procurement, competition, and small and medium-sized enterprises.

Indonesia’s trade balance has been positive in recent years. According to WTO data, in 2022 the country exported USD 291.9 billion worth of goods (+26.1% y-o-y), importing USD 237.4 billion (+21%). As per services, exports stood at USD 23 billion against USD 43.4 billion in imports (+65.4% and +52%, respectively). For the year as a whole, the World Bank estimated the trade balance to be positive by 3.6% of GDP (was 2.6% one year earlier). According to preliminary figures from Statistics Indonesia, the country’s exports from January to November 2023 amounted to USD 236.41 billion, marking an 11.83% decrease compared to the corresponding period in 2022. Similarly, non-oil and gas exports stood at USD 221.96 billion, reflecting a decline of 12.47% over the same period. The total import value in January-November 2023 fell by 6.8% from the same period last year to USD 202.7 billion.

 
Foreign Trade Values 20192020202120222023
Imports of Goods (million USD) 171,276141,622196,190237,447221,886
Exports of Goods (million USD) 167,683163,306231,506291,979258,857
Imports of Services (million USD) 39,28224,77128,55043,16551,353
Exports of Services (million USD) 31,64215,01613,95123,20833,434

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20182019202020212022
Foreign Trade (in % of GDP) 43.137.633.040.245.4
Trade Balance (million USD) -2283,50828,30143,80662,672
Trade Balance (Including Service) (million USD) -6,713-4,13318,54629,20842,335
Imports of Goods and Services (Annual % Change) 12.1-7.1-17.624.914.7
Exports of Goods and Services (Annual % Change) 6.5-0.5-8.418.016.3
Imports of Goods and Services (in % of GDP) 22.119.015.618.820.9
Exports of Goods and Services (in % of GDP) 21.018.617.321.424.5

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20242025 (e)2026 (e)2027 (e)2028 (e)
Volume of exports of goods and services (Annual % change) 1.46.010.56.96.9
Volume of imports of goods and services (Annual % change) 8.810.710.07.27.4

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
Indonesia is a member of the following international economic organisations: IMF, Asia-Pacific Economic Cooperation (APEC), ICC, Colombo Plan, WTO, Association of Southeast Asian Nations (ASEAN), G-15, G-20, G-77, among others. For the full list of economic and other international organisations in which participates Indonesia click here. International organisation membership of Indonesia is also outlined here.
Free Trade Agreements
Indonesia is a member of Regional Comprehensive Economic Partnership (RCEP) signed on 15 November 2020. The complete and up-to-date list of Free Trade Agreements signed by Indonesia can be consulted here.
 

Main Partner Countries

Main Customers
(% of Exports)
2022
China 22.6%
United States 9.7%
Japan 8.5%
India 8.0%
Malaysia 5.3%
See More Countries 45.9%
Main Suppliers
(% of Imports)
2022
China 28.5%
Singapore 8.2%
Japan 7.2%
Malaysia 5.3%
South Korea 4.9%
See More Countries 45.9%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
President: PRABOWO Subianto Djojohadikusumo (since 20 October 2024)
Vice President: GIBRAN Rakabuming Raka (since 20 October 2024)
Next Election Dates
Presidential: 2029
House of Representatives: April 2029
Current Political Context
On February 14, 2024, Indonesia held general elections to choose the country's president, vice president, and the members of the People's Consultative Assembly. As the constitution placed restrictions, incumbent President Joko Widodo could not run for a third term. Defense Minister and retired Army General Prabowo Subianto, along with Surakarta Mayor Gibran Rakabuming Raka (the eldest son of outgoing leader Widodo), former Jakarta Governor Anies Baswedan, alongside House Deputy Speaker Muhaimin Iskandar, and former Central Java Governor Ganjar Pranowo, alongside Political, Legal, and Security Coordinating Minister Mahfud MD, were the three presidential candidates who ran. Prabowo won a majority of the vote in the first round of the presidential election, negating the need for runoffs. Prabowo's 96.2 million votes were the highest received by any candidate in a democratic election in Indonesia. Nevertheless, Prabowo's Gerindra Party only received 13.2% of the votes in the legislative campaign. Despite losing seats, the Indonesian Democratic Party of Struggle (PDI-P) remained the largest party in the House of Representatives, one of eight parties that qualified for the national legislature in the legislative elections. The United Development Party (PPP) lost national parliamentary representation for the first time in its existence after failing to meet the 4% parliamentary threshold, while Golkar secured the most seats.
In light of the geopolitical rivalry between the United States and China, Indonesia is expected to maintain its non-alignment posture on the outside. Prabowo may have concerns about the West because he was prohibited from entering the country for 20 years before being appointed defence minister in 2019. He may continue to work with Beijing while taking a tough stand on the South China Sea territorial conflicts, though, considering China's substantial economic clout in Indonesia.
Main Political Parties
Single parties have little chance of garnering power alone. Thus, parties often work together to form coalition governments. Primary representation in parliament consists of both nationalist secular parties and moderate and Islamic-oriented groups. The major parties are:
Governing Coalition
- Party of Functional Groups (Golkar): follows conservative liberalism, advocates democratic and liberal values
- Great Indonesia Movement Party (Gerindra): conservatism, nationalism, populism
- National Awakening Party (PKB): Islamist, Pancasila ideology, nationalism
- National Mandate Party (PAN): Islamic democracy, Pancasila ideology
- Democratic Party (PD): centrist, Pancasila ideology

Opposition:
- Indonesian Democratic Party of Struggle (PDI-P): centre-left, follows Pancasila’ideology based on the five founding principles of the Constitution; a split-away group from the PD
- NasDem Party: centre-left, nationalism
- Prosperous Justice Party (PKS): Islamist, conservative.
Executive Power
The President is both the head of the State and the head of the Government. The President enjoys the executive power and appoints the cabinet. Both the President and the Vice-President are elected through direct universal suffrage for five-year terms. The President is the commander-in-chief of the armed forces and responsible for domestic governance and policy-making and foreign affairs.
Legislative Power
The People's Consultative Assembly (MPR), made up of the House of People's Representatives (DPR) and the House of Regional Representatives (DPD), is Indonesia's bicameral legislature. The DPD represents regional interests and has 136 members, with four delegates chosen by each province on a non-party basis. In contrast, the DPR, which is the lower house, has 580 members who are elected directly for five-year terms. Although the DPR can overturn this veto with a majority vote, the President has the power to veto laws but cannot dissolve the parliament.
 

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