Indonesia’s Economy to Return to Growth in 2021 — ADB

News Release | 28 April 2021

JAKARTA, INDONESIA (28 April 2021) — Indonesia’s growth rate is expected to reach 4.5% in 2021 and 5.0% in 2022 amid improving global conditions and a gradual reopening of the economy, says a new report by the Asian Development Bank (ADB) released today.

“Despite the unprecedented nature of the crisis triggered by the coronavirus disease (COVID-19), Indonesia has done well in 2020, thanks to the well‑coordinated, well-communicated crisis response and strong leadership to contain the pandemic,” said ADB Country Director for Indonesia Winfried Wicklein. “With a sustained trade recovery, a revival in manufacturing, and the large national economic recovery budget for 2021, we are optimistic Indonesia will return to its growth trajectory next year.”

The Asian Development Outlook (ADO) 2021 says Indonesia’s private consumption is expected to rise in 2021, as vaccination picks up pace and more areas of the economy open up. Investment is expected to bounce back along with the brightened economic prospects. The pace of financing or credit recovery, however, will lag amid uncertain investor sentiment.

Inflation, which averaged 1.6% last year, is forecast to rise to 2.4% in 2021 and 2.8% in 2022. It will still be within the Bank of Indonesia’s target range, as inflationary pressure from currency depreciation and higher demand for food will be partially offset by lower prices of goods set by the government.

Net exports, supported by strong exports of commodities, will put the current account deficit at 0.8% of Indonesia’s gross domestic product (GDP) in 2021. As investment picks up next year, higher volumes of imported capital goods, such as machinery and tools, are expected to push Indonesia’s current account deficit to 1.3% of GDP in 2022. 

Significant risks remain. The global recovery could be derailed by threats of new coronavirus mutations, the uneven pace of vaccination across the globe, and unexpected global financial tightening. On the domestic front, the economic recovery could be slowed by a spike in COVID-19 cases during Ramadan, delays in the vaccination push, and weak revenue collection.

To sustain the recovery, the report recommends that Indonesia mobilize domestic resources and ensure environmentally friendly economic development. Concerns of a debt overhang can be addressed by fiscal reforms to broaden the tax base, improve tax administration and compliance, and plug tax loopholes. Promoting a green recovery will protect the environment and support economic growth and job creation.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

COMMENTS