The Indonesian economy is on track to a firm recovery as a result of effective pandemic containment measures and ongoing policy support. Led by robust exports and stronger domestic consumption, real GDP rebounded by 3.7 percent in 2021 and is expected to expand further by 5.2 percent in 2022. Demand normalization along with economic recovery, is expected to lift inflation from the subdued level of 1.6 percent in 2021 to 2.8 percent in 2022.
Risks to the near-term outlook continue to stem from COVID-19 resurgences and external headwinds, including Fed tightening uncertainties. Indonesia is also facing challenges of executing a smooth exit from its expansionary pandemic policies in the medium term.
The pace of vaccination should be further ramped up, along with ongoing policy measures to support the recovery momentum. A smooth exit from pandemic policies hinges on the implementation of the tax reform package and continued fiscal-monetary policy synergy. Accelerating structural reforms, especially in the areas of financial deepening, investment environment, and digitalization, is crucial to strengthening the country’s resilience and growth potential post-pandemic. Efforts to mitigate the impact of climate change will contribute to the achievement of Indonesia’s sustainable development goals.