Indonesia, the largest economy in Southeast Asia, reflected an annual growth of 5.11% in Q1 2024. This is the country’s best financial performance in three quarters.
Indonesia’s Q1 Economic Growth Tops Expectations
Analysts pointed out that increased spending for the national election in February 2024 and Ramadan, which started in March 2024, bolstered this positive movement. It may, however, be challenging to maintain this momentum in the face of the global economy and domestic monetary pressures.
Reuters listed the persistently high US interest rates, the Middle Eastern conflict and local rate hikes as some of the factors that can hamstring continued growth. Financial experts also indicated that the election and religious period were one-off occurrences that buoyed the economy.
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Economists predicted a 5% growth rate, which was in line with the 5.04% achieved in the previous quarter. This uptick brought some relief after the Indonesian economy buckled under weak commodity exports in 2023. Indonesia is the world’s largest exporter of thermal coal, nickel and palm oil.
Bank Indonesia (BI) recently increased interest rates to support the weakening rupiah currency. Reuters cited a note to investors by Gareth Leather, an economist at Capital Economics, who wrote:
We think the economy is set to struggle over the coming quarters as high interest rates, lower commodity prices and below-trend global growth, weigh on demand.
Radhika Rao, a DBS Bank economist, echoed this view and indicated that BI will possibly further tighten monetary measures if the rupiah continues to weaken. According to Reuters, she said:
Firm growth will allow the BI to stay focused on price and FX stability.
