PwC Indonesia Economic Update

Third and Fourth Quarter 2023

During the third and fourth quarter this year, we have seen mixed sentiments on both the global and Indonesia’s economies.

As we delve into this Indonesian economic update, it is essential to recognise ongoing geopolitical uncertainties. The prolonged Russia-Ukraine conflict and the Palestine-Israel conflict illustrate these uncertainties, impacting global trade, investments, and economic stability. Adding to the complexity, the upcoming US presidential election would potentially increase uncertainty on the global stage, introducing an element of unpredictability that could potentially reshape geopolitical dynamics and affect economic policies worldwide. In this context, we examine how these global events may influence Indonesia's economic landscape in the coming months. 

Domestically, the Indonesian economy grew by 4.94% year over year (“YoY”) in Q3 2023, amidst the weakening global economy. The strengthening of the Indonesian economy was supported by increasing domestic demand. The result of Indonesia’s strong economic recovery can also be seen from the elevation of Indonesia’s ranking to an upper middle-income country as of 1 July 2023, even as the classification threshold rose following rising global inflation. Inflation remained under control during Q3 to Q4 2023 and began to recover within its target. In November 2023, inflation was recorded at 2.86% YoY, while core inflation was 1.87% YoY. This figure has increased compared to inflation data as of Q3 2023 of 2.28% YoY. 

Key Points

In Q3-Q4, Indonesia made significant strides in sustainability by enacting legislation to formalise the framework of a carbon trading system in the forestry sector. Additionally, supporting legislation was introduced to promote energy-efficient technology and regulate the mining industry. 

Amidst the weakening global economy, the Indonesian economy grew by 4.94% year over year (“YoY”) in Q3 2023. The transportation and storage industry contributed the most to this growth, while the real estate sector has also started to rebound.

In August 2023, the total active workforce grew by 2.77% YoY to 147.71 million workers. Out of these, 139.85 million people were employed, while 7.86 million were openly unemployed, accounting for 5.32% of the workforce. This indicates a slight improvement from February 2023, when the unemployment rate was 5.45%.

Overall, inflation remained under control and started to recover within its target. In November 2023, inflation was recorded at 2.86% YoY, with core inflation at 1.87% YoY. Additionally, the rupiah strengthened against the US Dollar in mid-December 2023 compared to October 2023.

Indonesia's total investment realisation in Q3 2023 amounted to IDR 374.4 trillion, reaching 75.2% of the total investment target for 2023. Foreign Direct Investment (“FDI”) has mainly been concentrated in sectors such as basic metals, metal goods, and non-machinery and equipment.  

State revenue realisation in Q3 2023 reached 82.65% of the target, slightly lower than the realisation in Q3 2022 at 87.1% of the target. Meanwhile, state expenditure realisation has reached 64.29% of the ceiling higher than the realisation in Q3 2023 at 61.6% of the ceiling. The 2024 fiscal policy strategy will be focused on controlling inflation, eliminating extreme poverty, reducing the prevalence of stunting and increasing investment.  

In Q3, Indonesia's trade balance showed marginal improvement, recording a quarterly growth of 0.52% and achieving a positive trade balance of USD 7.85 billion. Despite this slight quarterly improvement, the YoY growth in Indonesia's trade balance experienced a 47.5% decrease, suggesting a potential stabilisation and deceleration after the post-COVID recovery surges in trade activity.

In the tourism and travel sector, the number of domestic trips as of October 2023 amounted to a cumulative total of 688.8 million, marking a 12.0% YoY growth from the same period last year, primarily dominated by the island of Java. Meanwhile, in the retail sector, Bank Indonesia reported that the Month-over-Month (MoM) and YoY growth of the retail sales index in November was 0.9% and 2.9%, respectively. The overall Q3 2023 growth of the index was -0.2% compared to Q2 2023. 

Indonesia has achieved significant development progress in 2023, evidenced by a 3.66% yearly increase in real GDP per capita to IDR 11,899 thousand. The Human Development Index (“HDI”) also saw an improvement, rising to 74.39 from 72.91 in 2022. Overall, Indonesia is continuing to enhance its development and improve the general quality of life for the majority of its citizens, though there is still room for further improvement.

Contact us

Julian  Smith

Julian Smith

Director, PwC Indonesia

Tel: +62 21 509 92901

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