Indonesia Market Outlook
Published on: January 27th, 2021 Author: Karolis
We will take a look into Indonesian market outlook for the immediate future. Indonesia is expected to become an economic giant in the decade to come in the world economy. It is already the biggest economy in Southeast Asia and take the seventh place globally by purchasing parity. Last time country suffered from a negative DGP growth was back in 1998, and since then had a solid 5% growth year by year. The key factors of such stability in growth is due to private consumption of a huge domestic market, also by dramatically growing middle class at almost (71 million) 55% of GDP currently. On April 14th 2020 IMF forecasted that due to the pandemic of COVID-19 the growth of GDP should fall by 0,5% in 2020 and pick up to a record 8,2% in 2021 in the post-pandemic recovery.
Political stability, self-reliance and vigorous economic development are characteristics that have enhanced and saw the country largely insulated from the global economic crisis. Indonesia is now at a breaking point in its transformation from a low to middle income economy. Services, manufacturing and infrastructure are sectors within the country that are ripe for investing. This is signal for all investors around the globe to start investing into one of the largest growing economies in the world. Indonesia is showing promising signs of economical maturity. Indonesia is without doubt has all the characteristics to become a dominating global economy in the upcoming decades.
STRENGTHS
- Diverse natural resources (agriculture, energy, mining)
- Low labour costs and demographic dividend
- Growing tourism industry (5.8% of GDP)
- Huge internal market
- Sovereign bonds rated “Investment Grade” by the three main rating agencies
- Exchange rate flexibility
WEAKNESSES
- Large infrastructure investment gap / low fiscal revenues (15% of GDP)
- Exposure to shifts in Chinese demand
- Market fragmentation: extensive archipelago with numerous islands and ethnic diversity potentially leading to unrest (Papua)
- Highly exposed to natural disasters (volcanic eruptions, hurricanes and earthquakes)
- Persistent corruption and lack of transparency
Resources
Indonesia is blessed with a large variety of natural resources and is conveniently positioned globally next to dominating nations that show a demand for them. Until 2008 it was the only South East Asian member of OPEC. Indonesia is home to huge precious metals deposits such as copper, silver and gold, it is considered to be the largest tin and thermal coal exporter, and is the largest LNG exporter in South East Asia.
Indonesia is expected to be the major exporter of energy and resources to India and China. Natural and domestic markets and future exports are only on the rise which sets Indonesian market outlook for this sector to very optimistic.
Large & Youthful Domestic Market
The size of the Indonesian domestic consumer market, as a nation of approximately 240 million people and still rising, is an alluring quality for any investor. The global financial crisis challenged this country but it only showed great strength and economic power.
The country posted 4.5 % GDP growth in 2009, bucking the trend of most other G20 economies, and reported growth of 6.1 % in 2010, which was unexpected
Indonesian Market Outlook and the future
In the 2018-2020 timeframe, the World Bank’s 5.3% gross domestic product (GDP) growth forecast for Indonesia implies great growth from the projected 5.1% (y/y) growth rate in 2017.
In 2018 the Indonesian government did not meet its own growth objective of reaching a 5.4% (y/y) which was not as ambitious as the World Banks outlook. Rising wages mean rising household consumption mean rising GPD. That is why the World Bank estimated a solid jump of GDP.
Another factor that is boosting Indonesia’s economy are the increasing commodity prices. Currently Indonesia is the dominating exporter of commodities in the world.
Indonesia Economic Growth
Development, mainly supported by stronger domestic demand, is expected to accelerate quite a bit this year. Private investments should be encouraged by favorable funding conditions, increasing FDI inflows and higher commodity prices, while public investments would be increased by higher spending on public infrastructure.
Asset values may stay supported and GDP could increase if the inflation drops.
Inflation, hitting 3.3 percent in November 2017, was also subdued. In 2018, Bank Indonesia anticipated a further deceleration, reducing its target from 3 to 5 percent in 2019 to a range of 2.5 percent to 4.5 percent.
Infrastructure and FDI
Currently the Indonesian government is concentrated and at luring investors from all over the world to in invest firstly into various infrastructure projects such as electric plants, roads, airports and other sectors such as fashion, telecommunication, the movie industry and many more. US$500 billion were needed for the 2015-2019 government’s plan.
Tourism plays a great role in strengthening of the Indonesian economy and Jokowi is expecting tourism to climb to 7.5% by 2021.
Indonesia succeeded in staying strong during the 2008 global recession as Southeast Asia’s largest economy. At 47.1 percent, its diverse manufacturing portfolio contributes to the main share of the gross domestic product of the country. To note, some major industries in Indonesia are tourism at first, mining natural gas, cement, rubber, food, apparel and plywood.
Real Estate Industry
With the relative supply curve in decline, the increase in demand for hospitality buildings will translate into a favorable and lucrative price spike for long-term investors and realtors.
Landlords do not have to pay tax because housing lease transactions are currently not regulated in Indonesia, offering attractive investment opportunities.
Tourism and Hospitality
According to Marketline (2018), the Indonesian travel and tourism industry is expected to be $88.5 billion in 2022, with a significant rise of about 38.3% from 2017.
In the period 2017-2022, the industry’s compound annual growth rate is projected to hit a 6.7 percent growth rate.
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