PwC Indonesia Economic Update

Second Quarter 2023

The world economy entered 2023 with optimism, fueled by the reopening of China and better-than-expected European economic performance in coping with the Russia-Ukraine conflict. However, since we launched our Q1 report in March 2023, there have been several notable economic events that downgraded global economic optimism. First, the series of banking collapses in the US and Europe, which highlighted the global financial system’s deterioration. Second, the Eurozone officially entered a recession, as marked by GDP contraction in Q4 2022 and Q1 2023. Third, the new normal of a high interest rate is expected to stay as the fight against inflation continues.

Indonesia's economic growth remains strong amidst a global economic slowdown. This has been driven by improving domestic demand and continued positive export performance. Export growth was supported by strong demand from major trading partners. Household consumption improved in line with increased mobility and increased purchasing power, as well as reduced inflation.

Nevertheless, considering the persistence of global uncertainties, Indonesia’s steady economic progress still faces major challenges. We still see international economic factors (trade and investment) as potential sources of weakening of Indonesia’s economy. Our growth projection for Indonesia in 2023 stays at 4.8%. This number is in the range of Bank Indonesia’s projection of 4.5%-5.3%, and lower than the Ministry of Finance’s latest projection range of 5.1%-5.7%. This number is also slightly lower than the consensus of 4.9%.

The PwC Indonesia Economic Update - Second Quarter 2023 is a quarterly report issued by PwC Indonesia that analyses the trends and challenges of Indonesian economic conditions in Q2.

Key Points

Indonesia's economic growth remains strong amidst a global economic slowdown, which was driven by improving domestic demand and continued positive export performance. By industry, the growth was mainly led by Transportation and Storage, due to increased community mobility and foreign tourist arrivals.

  • Inflation in Q1 2023 was steadily decreasing and recorded at 4.97% (YoY) in March 2023, still above the Bank Indonesia target range of 3.0 ± 1%​. Although it remains high compared to the pre-pandemic level, Indonesia's economic prospects remain promising, as reflected in strong domestic demand. 

Indonesia's total investment realisation in Q1 2023 amounted to IDR 328.9 trillion, equivalent to 23.5% of the total investment target for 2023. The realised value was primarily contributed to by investments outside of Java, as Central Sulawesi is seen to be the top FDI location for its mineral resources reserves. However, global economic weakening might hinder Indonesia’s progress in achieving this year’s target.

  • In 2023, the infrastructure budget is focused on accelerating infrastructure development that supports economic transformation and new growth centres, such as accelerating the completion of national strategic projects (PSN) and promoting the Public Private Partnership (PPP) financing schemes.

Tighter monetary policy settings motivated by elevated inflation; and slowing global growth are expected to slow Indonesia’s economic activity through the second semester of 2023. At the sectoral level, the Indonesian renewable energy and tourism market value are expected to continue to increase, due to Indonesia’s commitment to net-zero emissions and rising inbound total tourist arrivals in Indonesia, respectively.

The realisation of the Indonesian State Budget in Q1 2023 recorded a surplus of 0.61% of the Gross Domestic Product (GDP), equivalent to IDR 128.50 trillion. The surplus comprises the state income realisation of IDR 647.15 trillion and state expenditure realisation of IDR 518.66 trillion, which are 26.27% and 16.94% of the 2023 targets, respectively.

The Government of Indonesia issued Regulation No. 12 2023 to provide facilities for projects in the new National Capital “Nusantara” (Ibu Kota Negara named Nusantara/”IKN”). Although the facilities are not necessarily new in concept, it is generally more attractive and available only for eligible taxpayers in the IKN. The facilities offered include Corporate Income Tax (CIT) reduction, zero-rated (0%) duty on acquiring land and building rights, provision of land/locations for business players, and others.

Contact us

Julian  Smith

Julian Smith

Director, PwC Indonesia

Tel: +62 21 509 92901

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