palm oil field plantation

Sturdy consumption and export growth buoy Indonesia’s GDP


According to data published by Statistics Indonesia, real GDP expanded by 5.7% year on year in the third quarter of 2022 (on a non‑seasonally adjusted basis), accelerating from 5.5% in April-June. EIU forecasts annual GDP growth to ease in the next quarter, as the surging cost of living and an anticipated global economic slowdown dampen household spending and demand for goods exports respectively.

Why does it matter?

The persistent global shortage of raw commodities since Russia’s invasion of Ukraine, particularly for coal and palm oil, has helped to boost Indonesia’s export volumes. Non-oil and gas merchandise exports, which constitute more than four-fifths of total goods and services exports, increased by 20.6% year on year in July-September—around the same rate as in the first and second quarters of the year. This has boosted the exports component of GDP, which increased by 21.6% year on year in the third quarter, from an already impressive 20% in the previous quarter.

While China and India remained Indonesia’s main export markets for coal, shortages in Europe allowed Indonesian exporters to penetrate the local market for coal that was previously dominated by Russia. Additionally, Indonesia’s peak harvest season for palm fruit fell in August and September, further swelling palm oil inventories. Both of these factors buttressed the resiliency of the external sector.

Exports continue to grow at double-digit rates, supporting GDP growth

The decision by Bank Indonesia (BI, the central bank) to keep interest rates low for most of 2022 helped to maintain robust growth rates in household consumption and investment. Private consumption, which contributes over half of GDP, expanded by 5.4% year on year in the third quarter, easing marginally from 5.5% in April-June. Growth in this component was underpinned by strong spending among middle- and high-income households, who were relatively less affected by rising living costs. This was reflected by strong growth rates in the transportation, accommodation and food and beverages sectors, as public mobility broadly returned to pre-pandemic levels.

Meanwhile, gross capital formation also increased by a healthy 5.8% in the third quarter, driven by an influx of foreign direct investment into downstream industries. This will translate into higher export growth in these industries, although its effects will not be apparent in the near term.

What next?

An anticipated slowdown in economic activity in Indonesia’s major trade partners in the months ahead will dampen demand for coal, pulling the brakes on Indonesia’s main export earner. In addition, elevated consumer price inflation and rising interest rates will weigh on household spending and investment. These developments will slow down the Indonesian economy in the next and subsequent quarters. We maintain our annual GDP growth forecasts for 2022 and 2023 at 5% and 4.1% respectively.

The analysis and forecasts featured in this piece can be found in EIU Viewpoint, our new country analysis solution. EIU Viewpoint provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.