Indonesia Economic Forecast

Year-on-year GDP growth was stable in the first quarter. Resilient household and public spending were mainly behind the reading. Activity should remain robust in the current quarter, although the pace of annual GDP growth will likely decelerate, mainly due to a fading low base effect. In April, consumer confidence and the manufacturing PMI rose. Moreover, inflation continued its downward trend. On the external front, in the same month, the trade surplus was wider than expected by markets, despite falling exports and imports amid lower prices for commodities. Meanwhile, in early May, the government decided to cut tax incentives for producers of lower-quality nickel, which should boost downstream investment and increase the value extracted from the country’s nickel reserves—the world’s largest.

Inflation came in at 4.3% in April, down from March’s 5.0%. The reading marked the lowest inflation rate since May 2022. April’s result was mainly driven by softer price pressures for housing and fuels. Inflation should slow further ahead, but it will remain high due to pass-through effects. Global commodities demand and energy prices are factors to watch.