Indonesia is on track to achieve a 5 percent growth rate this year, according to the latest Indonesia Economic Prospects report. Released by the World Bank, the bi-annual report highlights strong domestic demand and a recovering service sector as key drivers of the economy.
The report notes that private consumption and government spending were robust in 2024, while the manufacturing sector showed mixed results. Headline inflation decreased to 1.5 percent in November due to increased agricultural production and lower global oil prices. Additionally, unemployment fell, and labor force participation rose, particularly among women.
"Global monetary easing and stable macro conditions have accelerated capital inflows, bolstered foreign currency reserves, and relieved pressures on the rupiah. Indonesia’s banking sector prudential indicators remain sound, but there remains room to improve financial sector depth," said World Bank Director for Indonesia and Timor-Leste Carolyn Turk.
To achieve high-income status by 2045, the Indonesian government plans to boost private sector investment over the next five years. Fiscal stimulus will be provided for priority programs, including social protection initiatives. The report suggests that productivity-enhancing structural reforms could amplify these efforts.
Indonesia's long-term economic growth is linked to its ability to become more competitive. This requires investment in human capital, better social protection measures, improved revenue mobilization, and enhanced bureaucratic efficiency to attract investments in high-value-added sectors.
"Indonesia’s public capital stock—including assets in transport, utilities, health and education facilities—and the Human Capital Index lag its regional and structural peers," said Wael Mansour, World Bank Senior Economist and one of the report's authors. "Closing these gaps could enhance productivity and support sustained growth required to reach high-income status by 2045."
The report also examines Indonesia's tax performance with recommendations for improving domestic revenue collection to fund development goals.
The Indonesia Economic Prospects report receives support from funding by the Australian Department of Foreign Affairs and Trade.