EKONID Insight

Indonesia Posts Positive Growth in Q1 2022

13/05/2022

Indonesia grew 5.01% in the first quarter of 2022 due to a rise in commodity prices and the lifting of COVID-19 restrictions across the archipelago. However, rising inflation and the war in Ukraine give cause for concern.

Indonesia’s economy grew 5.01% annually in the first quarter of 2022.  

Consumption and investment picked up following the lifting of various COVID-19 related restrictions beginning late last year. Consumption, which takes up the lion’s share of Indonesia’s GDP, grew 4.3% in the first quarter, up 3.55% from the fourth quarter of 2022.  

Exports grew on the back of rising commodity prices such as coal, palm oil, and nickel, of which Indonesia is a major supplier. The country posted a US$4.53 billion trade surplus in March of this year compared to $1.57 billion in the same month last year. 

According to data from the Indonesian Statistics Agency (BPS), the transportation and warehousing sector contributed the most to the growth from the production side at 15.79%, while, on the demand side, export of goods and services contributed the highest at 16.22%. 

Data from the BPS also showed improvements in the employment rate. As of February 2022, as many as 144.01 million people were absorbed into the workforce, a 4.20 million increase compared to the same month last year. This translates to a 5.83% unemployment rate in February 2022, a 0.43% decline compared to the same month last year. 

Rising inflation a challenge 

Whether Indonesia can maintain this steady growth path depends on how it responds to the rising inflation. According to data from BPS, the country’s consumer price index rose to 0.95% (mtm) in April 2022 compared to 0.66% (mtm) of the previous month. 

This is in parallel to the rise in world food commodity prices, which are reaching their highest levels as the war in Ukraine spread shocks through the markets. The Food and Agricultural Organization’s food and price index averaged 159.3 points in March, up 12.6% from February 2022 and was 33.6% higher than in the same month of last year.  

In Indonesia, prices are rising across the board, from volatile food, administered prices, to core inflation indicators. On an annual basis, the consumer price index rose 3.47% in April compared to 2.6% in the previous month – the fastest since May 2020. 

Bank Indonesia has yet to issue any significant signaling of a rate hike at the time of publication, with the latest press release stating that the central bank would remain consistent in maintaining price stability and strengthen policymaking in coordination with the Indonesian government. The Indonesian Central Bank targets inflation at 3.01% in 2022. 

Commodities remain significantly important to the economy 

Despite the windfall from the rise in commodity prices, Indonesia remains committed on the path of industrializing the nation by curbing the exports of raw commodities. Since banning the export of unprocessed nickel in January 2021, Indonesia is still planning on banning the exports of raw bauxite starting in 2023, followed by raw tin exports in 2024.  

Indonesia has the world’s largest nickel reserves and is the second-largest producer of tin, the third-largest producer of coal, and the fifth-largest producer of bauxite. 

Already the country has shown willingness to impose bans on the exports of some globally crucial raw materials. In January of this year, the government enacted a one-month ban on thermal coal exports. Most recently, the government stopped exports of crude palm oil and palm oil products. Indonesia is the world’s largest supplier of palm oil, accounting for 60% of the global share. 

Hope rests on the Omnibus Law launched in 2020, which significantly expanded the freedom of foreign investors to invest in the country. Indonesia’s presidency of the G20 this year is another opportunity for the country to discuss with its trading partners on how to ensure that the global economy can recover stronger together.