With Indonesia Predicted a Strong Growth in GDP, How Is This Affecting the Markets?
Jun 22, 2017

Indonesia is a country that has been implementing a lot of reforms with a view to improving the investment environment and promoting growth. The forecast for Indonesia's growth is extremely positive at the moment, with The World Bank anticipating GDP growth of 5.1% in 2017, and 5.3% the following year. There are a lot of reasons why Indonesia is setting itself apart on the world stage as a developing market, and those interested in emerging markets on the whole or growing markets in Asia are seeing Jakarta as a promising investment opportunity.


In the Southeast Asia region, Indonesia is one of the biggest commodity exporters. However, the country has also been decreasing its reliance on exports and looking to domestic consumption as a stronger driver in economic growth. Indonesia has a rapidly growing middle class, and this is enabling this increase in economic dependence on consumption within the nation. At present, around 55% of economic growth is attributed to private consumption, and this is predicted to be a trend that will continue as the currency (the Indonesian rupiah) remains stable and interest rates are low. This combines to create an environment of consumer confidence that is aiding consumption and therefore growth.


Economic reforms in Indonesia are also a significant factor in terms of the confidence in the prospects for growth in the country. There have been structural changes to reduce overall bureaucracy, and to make the Indonesian economy easier for people to invest in, including changes to how the Indonesian markets can be accessed. Indonesia has seen improvements in its 'Ease of Doing Business' rankings as a result, and its trade surplus has increased as a positive effect of this. In March 2017, it posted a $1.23 billion trade surplus – a huge increase on its $0.51 billion surplus at the same point in 2016. It seems that the measures being taken to up Indonesia's game as a strong investment climate are working well.


However, there is the potential that work on the reforms in Indonesia may be slowed or altered by the prospect of an election in 2019. The results of a recent gubernatorial election in Jakarta, which saw the challenger Anies Baswedan secure victory, are being used as a kind of barometer in terms of political opinion, and the possibility that reforms may be impacted is one that people considering long term investment in the Indonesian market will certainly be bearing in mind; currently the impact of the result hasn’t started to show. While there is some religious backdrop to the politics in Indonesia, the general sentiment seems to be that the country largely supports the work of current President Widodo on the economy, and so a change in leadership may introduce some unwanted uncertainty.

All in all, things are looking good for Indonesia, outperforming other emerging markets barring Brazil in the early part of 2017. If reforms continue and growth manages to reach the levels predicted, Indonesia will remain a very interesting prospect for investors who like to take advantage of opportunities in emerging markets.