The World Bank predicts Indonesia’s growth could be stuck at a level of 4.7 percent for 2023
The international financial institution sees the probability that Indonesia’s economic growth rate could slow down to 4.6 percent this year, affected by unstable global conditions.
“The global economic environment could create a downward pressure in that projection,” the World Bank’s chief economist for Indonesia and Timor-Leste, Habib Rab said.
Despite the grim forecast, the international financial institution also gave its projection for the best scenario. The World Bank estimates that the Indonesian economy can also grow 5.1 percent in 2022 and 5.3 percent in 2023.
A widespread decline in global economic growth could lead to plunging demand for commodity exports, triggering production cuts and higher prices. This condition forces fiscal reallocation from spending that supports economic growth to untargeted subsidies.
The hiking of interest rates may translate to higher borrowing costs and lower investment.
Habib estimated Indonesia’s inflation rate will also increase, reaching up to 3.6 percent in 2022. The rising world oil prices will affect consumer price inflation in Indonesia. However, the effect can be controlled by providing energy subsidies or by an appreciation of the rupiah exchange rate.
Although indicators show expectations of an inflation hike, according to Habib’s assessment the inflation will remain. So far, the inflation rate is still within Bank Indonesia’s target limit.
