Jakarta. The World Bank has maintained its projection for Indonesia's economic growth to reach 4.9 percent in 2023 while expecting an uptick in growth over the medium term, the multinational lender announced Monday.

The country witnessed a significant economic growth of 5.3 percent in 2022, which the World Bank attributed to pent-up demand from the Covid-19 pandemic. This marked a substantial increase compared to the 3.7 percent growth in 2021.

According to the lender's previous projection last December, the largest economy in Southeast Asia would expand by an average of 4.9 percent over the medium term (2023-25).

Experts attributed the slowing growth to the normalization of domestic demand this year and the global economic slowdown.

"When the economy opened up after the pandemic, the previously contained demand was suddenly unleashed, leading to rapid economic growth. However, we expect this pent-up demand to normalize," stated Habib Rab, the World Bank's lead economist for Indonesia and Timor Leste, during a press briefing in Jakarta.

Indonesia's moderate growth can also be attributed to a projected global economic slowdown. Rab stated that the global economy is expected to grow slower, decreasing to 2.1 percent in 2023 from 3.1 percent in 2022. He further explained, "The decrease in global demand should cause a reduction in global trade. This will affect Indonesia's growth."

A stable trend in the medium term

The World Bank forecasted that Indonesia's gross domestic product (GDP) growth would improve to an average of 5 percent for 2024 and 2025.

The Washington-based institution said private consumption would remain the main driver for growth as inflationary pressures subside. 

The World Bank's latest report indicates that Indonesia's headline inflation reached 4 percent year-on-year (YoY) in May, marking the lowest level recorded since its peak in September 2022.

This development brings the country's inflation back within the 2 to 4 percent target range set by Bank Indonesia, the country's central bank, for the first time since June last year. The World Bank expects inflation to decrease to 3.6 percent by the end of 2023.

"The declining inflation in Indonesia is largely driven by the falling food prices. At the same time, inflation has become more broad-based. In other words, there are faster price increases across a larger share of the CPI [consumer price index] baskets instead of having few items driving the inflation. This would normally be a concern as it could lead to runaway inflation," Rab said.

The World Bank predicts that Indonesia's inflation will continue to decline, averaging around 3.5 percent during the period of 2024-2025.