Argentina tops G20 economies with a staggering inflation rate of 88 percent in October, surpassing Turkiye’s at 85.5 percent. Amongst the advanced G20 economies, the U.K. faces the second-highest inflation of 11.1 percent, after Italy recorded 12.8 percent in October 2022.

The high inflations have led to food insecurity, Russia’s invasion of Ukraine, and persistent pandemic effects. As a result, it has become increasingly evident that global economic growth is slow, according to the International Monetary Fund (IMF) experts, upon tracking the progress of the G20 economies.

Few Performers

IMF Managing Director Kristalina Georgieva urged 190 member countries to prepare for the impending “severe storm” of the global economic crisis. The IMF deemed that the two years of the COVID-19 pandemic, which the Russo-Ukrainian War followed, had a significant impact on international trade activity and financial market turbulence.

Economists have revised down 2023 growth forecasts for Southeast Asia’s five biggest economies over concerns about a global slowdown amid rising interest rates in the U.S. gross domestic product for Indonesia, Malaysia, the Philippines, Singapore, and Thailand is expected to rise 4.3 percent in 2023, according to the latest quarterly survey by the Japan Center for Economic Research and Nikkei in September.

Each country’s growth was revised. For example, the outlook for Indonesia was cut to 4.9 percent from 5.1 percent, Malaysia 4.0 percent from 4.6 percent, the Philippines 5.4 percent from 5.6 percent, Singapore 2.2 percent from 3.5 percent, and Thailand 3.7 percent from 4.4 percent.

Meanwhile, Indian and Indonesian bonds offer shelter from extreme volatility in global markets. The two countries sovereign debt only lost 0.4 percent and 1.5 percent, respectively, for dollar-based investors in the third quarter, less than other emerging markets in Asia, including China, according to data compiled by Bloomberg.

They knocked China off the top spot as the best performer in the region. Indian and Indonesian notes have the widest spreads in emerging Asia, helping shield investors from the turmoil in the U.S. Treasuries, which had the most prolonged quarterly losses in almost a decade.

The G20 presidency of Indonesia for the past year has searched out the finest answers to world issues. The success of Indonesia’s presidency was recognized by adopting and ratifying the G20 Bali Leaders’ Declaration. In addition, many countries have praised Indonesia’s success amid various global crises and problems.

Indonesia is the sole representative of Southeast Asia and one of the G20 forum’s pivotal developing countries. The Economist even dubbed Indonesia as “Asia’s Overlooked Giant.” Furthermore, there was a moment of launching Indonesia’s cooperation commitment with the United States in the Partnership for Global Infrastructure and Investment (PGII) scheme during the G20 Summit.

Under the PGII scheme, the United States will mobilize $600 billion in funding for infrastructure development in developing countries over the next five years. Indonesia has also been committed to the Just Energy Transition Program (JETP) program. In addition, the G7 countries will provide $20 billion (IDR311 trillion) over the next three to five years to finance emission-reduction projects.

Indonesia’s Economic 2022 Portrait and Its 2023 Trajectory

President Joko Widodo said the global economic recession was expected to start early in 2023 and urged his staff to work wiser and to have a sense of crisis. The President advised his officers to exercise caution in formulating policies since unfitting policies would have a fatal impact. All governmental elements should realize that the current situation is not easy, not only for Indonesia but developed countries are facing difficult times as well.

The 2023 State Budget focuses on six points, according to President Jokowi in the State Palace, who submitted the Budget Implementation Entry List (DIPA) and the Allocation List of Transfers to Regions and Village Funds (TKKD) for the 2023 fiscal year. The state budget will be used to improve human resources, speed up social welfare reform, maintain building infrastructure, expand infrastructure to support the growth of new economic hubs, including the new capital of Nusantara, to revive the industrial sector by maintaining down streaming incentives, and to enhance regulatory simplification and bureaucratic reform. President Jokowi also asked regional heads to check the inflation rate movement in their respective regions routinely.

Indonesia maintained an impressive 5.72% year-on-year gross domestic product (GDP) growth in the third quarter of this year while bringing down inflation to 5.71% in October from 5.95% in the previous month. However, signs of a slowdown have become more visible in recent days as the country’s manufacturing purchasing managers’ index, an indicator of industry health by S&P Global, has fallen in October, with export orders being the main factor.

Indonesia must remain alert against five potential global risks that could affect national economic growth and recovery in 2023, Bank Indonesia (BI) Governor Perry Warjiyo said during the 2022 Bank Indonesia Annual Meeting on Wednesday. He said the risks included the slow growth trend and the increasing recession risk in the United States and Europe.

Not to mention the high inflation due to surging food and energy prices and the high-interest rate, including the Federal Funds Rate, which could reach five percent and remain high next year. There are also the strengthening of the U.S. dollar, which could lead to a depreciation in other currencies, including the Indonesian rupiah, and fund withdrawals by global investors seeking to redirect their assets to liquid assets due to high economic risk.

Finance Minister Sri Mulyani highlighted the world would plunge into a recession in 2023, triggered by high inflation due to the soaring food and energy prices in several countries, especially in Europe and the United States. In addition, high inflation pushes central banks in developed countries to raise interest rates and tighten liquidity. In response, she added that the 2023 State Budget deficit would be below three percent, at IDR598.2 trillion or 2.84 percent specifically. Sri also emphasized that Indonesia should be aware of the food, energy, and financial crises that can potentially occur in 2023.

Indonesia’s government is aware of the risk of declining foreign direct investment in line with the slowdown in China’s economy and the mounting threat of a global recession. China’s economic downturn will affect the global economy, including Indonesia. China is the second-largest economy in the world and an important trading partner for dozens of countries.

Indonesian investment authority is formulating strategies to continue to gain foreign direct investment amidst the wait-and-see action of investors. It has prepared several methods, including diversifying the country of origin of investment sources that focus on increasing added value and spurring downstream.

Indonesia remains an attractive place for technology investments, according to the e-Conomy SEA 2022 report. Global investment company Temasek official Fock Wai Hoong recently said Indonesia’s digital economy would continue to attract investment because of its strong fundamentals, such as having a large, highly active user base and a dynamic technology start-up ecosystem.

Indonesia has attracted 25 percent of the total value of private funding in the region. It will remain attractive to investors in Vietnam and the Philippines in the long term. Digital financial services have replaced e-commerce as the top investment sector by reaching a value of $1.5 billion in the first half of this year.

Google Indonesia Managing Director Randy Jusuf said Indonesia’s e-commerce sector recorded the fastest growth after Vietnam. According to the e-Conomy SEA report, the country’s digital economy was projected to reach a Gross Merchandise Value (GMV) of $77 billion by 2022 after growing 22 percent in the past year. He also said the e-commerce sector continues to drive the digital economy, and its value is estimated to reach $59 by 2022. E-commerce accounts for 77 percent of the entire digital economy, albeit the return of on-site shopping activities. In addition, Randy projected that transportation and food delivery services might reach a GMV of $8 billion by 2022.

The country’s foreign and domestic direct investments have remained solid, collectively growing by 35.5 percent year-over-year as of Q2 of 2022. Indonesia leads its neighbors in export growth, with a 32 percent y.o.y. growth and trade surplus.

Its digital economy has hit approximately US$77 billion this year with an approximate 22 percent YoY growth in gross merchandise volume. The sector will become a $130 billion digital market by 2025, fueled primarily by e-commerce, similar to its ASEAN neighbors.

The Indonesian Central Bureau of Statistics recently released the latest data showing that driven by continued export growth and improved investment, the country’s GDP grew by 5.72% year-on-year in the third quarter of this year, continuing the momentum of economic recovery that began in the second quarter of 2021.

From the perspective of industry data, except for the health service sector, Indonesia’s major economic sectors have achieved growth in the third quarter. Industry, agriculture, trade, and construction continued to recover, contributing 66.45% to Indonesia’s economic growth.

The growth of multiple industries has led to an increase in domestic and foreign investment in Indonesia. Indonesian Ministry of Investment introduced that under the impetus of investors from China, Singapore, Japan, and other countries, Indonesia attracted a record 169 trillion Rupiah of FDI in the third quarter or an increase of 63% YoY.

Maritime Affairs and Investment Coordinating Minister Luhut Binsar Pandjaitan said investment worth $30.9 billion in the downstream sector is ready to be executed to benefit the Indonesian economy. According to the minister, investment is in the construction stage and awaits approval. Luhut added the investment pipeline will reach $30.9 billion by 2026. They are spread from Kalimantan, Sulawesi, to the North Maluku islands.

President Jokowi previously mentioned the investment realization target to Investment Minister Bahlil Lahadalia. He warned that the Rp1,200 trillion investment target must be met. If the target is not met, Indonesia’s economic growth will suffer. Some investors are interested in Indonesia’s new capital city, or IKN Nusantara project, said Minister of Public Works and Housing (PUPR) Basuki Hadimuljono last month. With the high interest of foreign investors, the official was optimistic that the project could be mainly funded from investment instead of the state budget, as reported by the Indonesian weekly magazine Tempo last year.

He listed a series of sectors for investment, including road construction, drinking water, education, and hospitals. According to the minister, the Indonesian government has worked with the Malaysian and Japanese sides to hold forums to promote investment in the project. PUPR spokesperson Endra Atmawidjaja said at least 183 Malaysian investors working in property, health, digital, start-up, transportation, and energy sectors are interested in investing in the new capital city.

However, it must be underlined that global pundits have warned that the 2023 worldwide trade and finance market is still murky. Therefore, each country needs to be prudent regarding investment and any policy related to financial matters. In addition, the development of infrastructure in the new capital city in East Kalimantan and the preparation for simultaneous 2024 general elections (both presidential and legislative elections) are facing serious challenges that must be meticulously anticipated.

According to the Coordinating Ministry for Economic Affairs, Indonesia is expected to transform into a developed country by 2043. This is pushback from an initial target of 2036-2038 (TE). In anticipating a global recession, every constituent must contribute whatever they can to avoid further pushback and transform it into an opportunity.***