The Organization for Economic Co-operation and Development (OECD) forecasts that Indonesia's economy will grow by only 5.2% in the first year of President Prabowo Subianto's administration, 2025. This figure is slightly higher than the 2024 projection of 5.1%. 

 

"Consumption will remain strong, and private investment is likely to increase," stated the November 2024 edition of the OECD Economic Surveys Indonesia report, released on Monday (12/9). 

 

Although domestic consumption has been strengthening since 2022, the OECD notes that Indonesia's economic activity remains below pre-pandemic trends. Meanwhile, exports continue to benefit from strong international demand for Indonesia's key commodities. 

 

Global geopolitical tensions, such as the Russia-Ukraine conflict, have also impacted the economy. Initially, rising energy, food, and fertilizer prices strained household purchasing power and the government's budget. 

 

The OECD report highlights the dual effects of these tensions on Indonesia: "Russia's aggression toward Ukraine initially drove up energy, food, and fertilizer prices, which affected purchasing power," the report noted. 

 

Three Factors That Could Disrupt Economic Growth 

 

Amid current economic conditions, the OECD warns of several factors that could hinder Indonesia's economic growth. Addressing these issues is critical to ensuring the country’s growth prospects. 

 

The first factor is the surge in food and energy prices. This concern could lead to higher living costs and ballooning government fiscal expenditures. The OECD recommends that the government reform subsidies to target them more effectively. 

 

The second factor is declining investor interest. The OECD observes that this could result in reduced investment and the outflow of foreign capital from the country. 

 

To counter this, the government is advised to exercise caution in debt financing policies to maintain investor confidence and ensure adequate foreign exchange reserves. 

 

The third factor is natural disasters. As one of the world's most disaster-prone countries, Indonesia faces risks from volcanic eruptions and earthquakes. Such events could strain fiscal resources and significantly impact the social and economic landscape. 

 

To mitigate these risks, the OECD suggests that the government integrate climate considerations into financial stress tests and land-use planning regulations. Additionally, expanding insurance coverage to more citizens is recommended. 
 

Original article here

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