Robust household consumption and solid public investment kept Indonesia’s growth above 5% p.a. in 2018. These trends are expected to persist in 2019, with President Jokowi’s re- election in April, and the promise of policy continuity, adding further upside. During the campaign, Jokowi promised to continue investing in infrastructure and social support programmes, and to attract foreign investment. But a volatile external environment affecting trade and commodity prices, as well as tighter financial conditions add risks to the outlook.
The medium-term outlook is positive. Favourable demographics and an expanding middle class bode well for Indonesia. But much rests on the Jokowi administration’s ability to execute its reform agenda over the medium term. The infrastructure gap remains of concern, with logistical expenses equivalent to 24% of GDP, compared to 13% in Malaysia.