Executive Search in Indonesia– 2017 Outlook

Indonesia Continues Rapid Growth

Indonesia is Southeast Asia’s largest economy and the world’s fourth most populous country with almost 250 million people. Its economy has grown rapidly and the World Bank forecast is for economic growth of 5.3% in 2017. This is higher than the average economic growth of emerging economies of 4.4% and the global economy of 2.8%.

According to the Indonesian Central Bank, the increased confidence of investors and business players is key to ensuring improvements in the performance of the Indonesian economy. Exports are expected to grow along with the increase in commodity prices such as palm oil, rubber and coal; which will also drive the economies of commodity-based provinces in Sumatra and Kalimantan.

Indonesia’s economic growth in 2017 is set to improve as the government’s economic policy packages launched throughout 2015 — 2016 begin to take effect on the Indonesian economy. The success of the tax amnesty programme in the second half of 2016 is already serving to boost the confidence of investors and Indonesian business players.

Repatriated funds from the tax amnesty programme are expected to increase to 180 — 200 trillion IDR by the end of the year. This should help cover the deficit as well as increase Indonesian banks’ liquidity and third party funds against gross domestic product (GDP) by a ratio of 1.7% – 2% in 2017.

The policy is also beginning to yield more fiscal room to the government so as to resume its aggressive infrastructure development and economic reform programmes.  These have slowed down in the second semester of 2016 due to a decline in revenue collection which led to budget and spending cuts. This renewed thrust should eventually attract more investment and drive the country’s economy forward to improve GDP growth.

Household consumption in Indonesia is strengthening due to people’s improving purchasing power amid low inflation.

Both the economic policy packages and the tax amnesty program also boost investors’ confidence in the Indonesian government. This should result in more direct investment as well as credit growth (which has remained subdued so far this year). The exchange value of the rupiah in 2017 is expected to remain stable and under control at 13,100 — 13,300 IDR to the US Dollar.  Meanwhile, the Jakarta Composite Index will rise as issuers on the Indonesia Stock Exchange recorded increased profit amid a flood of capital inflows.

As a result, Indonesia’s economic growth is expected to continue to accelerate in 2017. Based on the latest World Bank report, the economy will grow 5.1 percent (y/y) in 2016, 5.3 percent (y/y) in 2017 and 5.5 percent (y/y) in 2018.

World Bank Projections – Economic Growth (annual % change):

Country 2016 2017 2018
Indonesia   5.1   5.3   5.5
China   6.7   6.5   6.3
World   2.4   2.8   3.0
Emerging Markets   3.5   4.4   4.7

Source: World Bank

Impact of external factors on Indonesian Business:

Although Indonesia’s intrinsic strength lies in its strong domestic market, the country is still vulnerable to what happens in the global economic and political arena. Factors would include a hike in interest rates by the US Federal Reserve, the economic slowdown in China and the fear of greater protectionism by the US government under its newly-elected President Donald Trump. It would also be interesting to follow up on the election results in France and Germany in 2017. These two countries are the backbone of the European economy and their policies will impact many countries, including Indonesia.