- Indonesia's GDP grew by 5.05% YoY in 2023, but a notable gap between real and nominal GDP exists due to global disinflation, impacting many sectors including exports and imports. Disinflation has mainly been spurred by external dynamics, including declining commodity prices and China's excess industrial capacity.
- Disinflation could negatively affect economic growth, causing margin compression and leading to a diminished inclination for spending, expansion, and investment. It also leads to bank deposits and loans growing much slower.
- Election-related spending and (largely public sector-driven) fixed-asset investment lifts up Indonesian growth relative to the global and regional trend, but a post-election slowdown is anticipated in the absence of any substantial catalyst ahead.
- BI could restore growth momentum with rate cuts in H2-24, but timing depends on global factors and uncertainties. One potential remedy is for BI to cut the reserve requirement ratio (RRR), which could swiftly address Indonesia's liquidity gap with less risks to inflation and exchange rates.
