Jakarta. As global economic pressures intensify, Bank Indonesia (BI) has projected that Indonesia's economy will remain resilient despite challenges arising from geopolitical tensions and global market fluctuations. US President Donald Trump's policies and their potential impact on trade wars, supply chain disruptions, and rising inflationary pressures are expected to create turbulence for the global economy, potentially slowing growth in 2025 and 2026.

BI Governor Perry Warjiyo, speaking at the annual Bank Indonesia meeting on Friday, outlined five key challenges facing the global economy. These include slower and divergent growth, with the US economy improving while China and Europe experience a slowdown. However, Warjiyo pointed out that Indonesia, alongside India, is expected to maintain steady growth.

"Growth in the US will improve, while China and Europe are set to decelerate. However, India and Indonesia will remain relatively strong," Perry said.

The second challenge highlighted by Perry is the re-emergence of inflationary pressures. As global inflation rates slow, they are expected to rise again by 2026 due to supply chain disruptions and the potential for trade wars.

Perry also discussed the uncertainty surrounding US interest rates, with the Federal Reserve expected to reduce rates in the short term, but the yield on US Treasury bonds is predicted to rise to 4.7 percent in 2025 and 5 percent in 2026 due to rising US government debt and fiscal deficits.

Another challenge is the strengthening of the US dollar. Perry said that the US dollar index had risen from 101 to 107, putting pressure on currency stability globally and causing depreciation across many currencies, including the Indonesian rupiah.

Lastly, he pointed to the strong perception among foreign investors that the US offers a more attractive investment environment, drawing capital away from emerging markets and back to the US due to higher interest rates and a stronger dollar.

"These five global shocks will have negative impacts on various countries, including Indonesia," Warjiyo said.

Despite these external pressures, BI forecasts Indonesia's GDP growth to remain within the range of 4.8 percent to 5.6 percent in 2025, with a similar outlook for 2026. Domestic consumption, a key driver of Indonesia's growth, is expected to remain robust, alongside solid export performance despite global uncertainties. 

Indonesia's economy grew by 4.95 percent in the third quarter of 2024. For the full year, Bank Indonesia projects economic growth to be within the range of 4.7 percent to 5.5 percent.

"Exports will continue to perform well amidst global economic slowdown," Perry said.

In response to the global challenges, Perry said that Indonesia must remain optimistic and focus on strengthening its domestic economy. The country’s economic transformation must be reinforced in five key areas: macroeconomic and financial stability, boosting domestic demand—particularly consumption and investment, improving national productivity, deepening financial markets for economic financing, and advancing digital payment systems and financial digitalization.

"Stability is crucial for any country to achieve high growth. Indonesia’s credibility, recognized internationally for its discipline, is key to resilience against global shocks," he said.

He also stressed the importance of aligning fiscal and monetary policies to manage inflation, fiscal deficit, stabilize the rupiah, and ensure effective issuance of government bonds and BI's monetary operations.

According to Perry, consumption plays a vital role in driving economic growth, particularly for lower-income households. Strengthening social protection and creating jobs are essential to maintaining consumption levels, with labor-intensive sectors being prioritized by the government.

"Food downstream industries create large numbers of jobs, support inflation control, and improve people's welfare," he added.

Achieving high economic growth requires ongoing economic transformation, he said. This includes optimizing vocational education, professional certifications, and incentives in labor-intensive sectors, as well as improving infrastructure and supply chains. Increasing foreign direct investment and improving the investment climate are critical for boosting productivity and attracting more capital.

"We need to increase investment levels by improving the investment climate, accelerating foreign direct investment realization, and focusing on capital-intensive sectors," he concluded.

Add as a preferred source on Google +