The Economy is Growing, but Not Yet Stable and Quality

Unstable economic performance could have an impact on slowing economic growth throughout 2024.

KOMPAS/PRIYOMBODO

The density of vehicles on Sudirman's protocol road in Jakarta on Monday (6/5/2024). Amidst various global and domestic uncertainties, the Indonesian economy is able to grow by 5.11 percent. Domestic activities, such as elections and the Ramadan moment, are supporting economic growth which is the highest in the last five years.

JAKARTA, KOMPAS — Despite growing 5.11 percent, economic growth at the beginning of this year is considered not yet stable and high quality. Economic performance is helped more by seasonal factors, not supported by main sectors. Job creation is not yet massive enough, so the majority of the population still works in the informal sector.

The Central Statistics Agency (BPS) noted that throughout the first quarter of 2024 (January-March), the value of Indonesia's gross domestic product (GDP) at current prices was IDR 5,288.3 trillion, while GDP at constant prices was IDR 3,112.9 trillion.

With that achievement, Indonesia's economy in the first quarter of 2024 grew 5.11 percent annually, despite contracting 0.83 percent quarterly. Historically, this is the highest quarterly growth achievement in nine years or since 2015.

Also read: The Economy Grows 5.11 Percent in the First Quarter of 2024, the Highest in Five Years

Acting Head of BPS (Central Statistics Agency) Amalia Adininggar Widyasanti stated that the economy is capable of solid growth amidst global uncertainty due to the support of dynamic domestic activities at the beginning of the year. This is particularly due to the moments of the 2024 General Election, Ramadan, and preparation for Idul Fitri.

"In the midst of declining prices for key export commodities, the Indonesian economy was still able to grow solidly by 5.11 percent year on year. This is supported by the strength of our domestic economic activity," said Amalia in a hybrid press conference held in Jakarta, Monday (6/5/2024).

Helped by a momentary factor

The economic activities that support growth in the beginning of the year are generally seasonal or temporary, such as elections and Ramadan. If analyzed further, the contribution of seasonal factors can be seen from both the expenditure and business fields.

From the expenditure side, the component with the highest growth rate is government consumption, which grew by 19.9 percent, as well as non-profit institutional serving households (LNPRT) consumption which grew by 24.29 percent due to election activities. Usually, these two small components only grow by single digits.

In terms of quantity, economic growth is considered safe, but in terms of quality, this achievement is questionable.

Meanwhile, the performance of the main components that should contribute significantly to the economy is actually moderate at the beginning of the year. This can be seen in the household consumption growth that was only 4.91 percent, which is below the ideal level of 5 percent.

Similarly, the formation of gross fixed capital (PMTB) which represents investment performance only grew by 3.79 percent. The export and import components also only grew by 0.50 percent and 1.77 percent respectively, amid global trade slowdown.

KOMPAS/PRIYOMBODO

Visitors shop at the Transmart retail supermarket in Jakarta, Wednesday (17/4/2024).

From a business perspective, the sector experiencing the highest growth is government administration, with a growth rate of up to 18.88% due to increased spending on employees, through increases in civil servant salaries and holiday allowances (THR).

The health services sector also grew 11.64 percent due to increased spending on employees of government health institutions, as well as corporate services which grew 9.63 percent due to the activities of event organizers for the election.

Also read: Many Turmoil at the Beginning of the Year, Indonesia's Economic Resilience is Tested

The performance of the main sectors that should contribute significantly to the economy has instead been moderate, even contracting. The manufacturing industry only grew by 4.13%, trade by only 4.58%, while agriculture actually contracted by -3.54% due to a decrease in food commodity production impacted by El Nino.

Limited job opportunities

According to Mohammad Faisal, Executive Director of the Center of Reform on Economics (CORE) Indonesia, while the quantity of economic growth is considered safe, the quality of its achievement is being questioned.

KOMPAS/AGUS SUSANTO

Job seekers queue to enter the job fair exhibition at Grand Mall Bekasi, Bekasi City, West Java, on Monday (4/3/2024). Around 8,000 applicants are competing for job vacancies provided by 35 national companies.

Apart from being more heavily influenced by seasonal factors and overshadowed by the sluggish performance of the main sector, economic growth is considered to have not been able to create ample job opportunities for the people.

This can be seen from the presentation of the employment conditions as of February 2024 released by BPS. The unemployment rate was recorded at 7.2 million people with an open unemployment rate (TPT) of 4.82 percent.

Looking ahead, economic growth will face more difficult challenges throughout the year.

Despite a decrease compared to the peak of the pandemic in 2021 (8.75 million people), the number of unemployed people as of February 2024 is actually higher than pre-pandemic. In 2018-2019, the number of unemployed reached 6.87 million people (2018) and 6.82 million people (2019).

Although unemployment has decreased, it is mostly absorbed in the informal sector. The Central Statistics Agency noted that as of February 2024, the proportion of informal workers has increased and dominated by 59.17 percent. this composition is higher than before the pandemic, at 56.64 percent in February 2020.

"The encouragement is more of a one off (one time). "So, growth of 5.11 percent is only high in terms of value, but the elasticity of job opportunities created has a gap that is not in line with accelerated economic growth," he said.

Risks all year round

Faisal assessed that unstable economic performance could have an impact on the projected slowing economic growth throughout 2024 (full year). Moreover, there are a number of risks that could hamper growth, such as the impact of geopolitical tensions and turmoil in global financial markets.

Also read: 2024 Projections, Two Story Economy

He estimates that Indonesia's economy throughout 2024 will only grow by 4.9-5.0 percent. This is in line with projections from several international economic institutions, such as the World Bank, which projects Indonesia's economy to grow by 4.9 percent in 2024, and the International Monetary Fund (IMF), which projects growth of 5.0 percent.

On the other hand, there are not many other temporary factors that could emerge in the remaining months of this year to support economic growth like in the first quarter.

KOMPAS/PRIYOMBODO

Workers walk during the lunch break in an office area in Jakarta, on Monday (5/6/2024). From an expenditure perspective, economic growth in the first quarter of 2024 was mainly supported by household consumption, which grew by 4.91 percent annually, as well as gross fixed capital formation, which depicts investment performance growing by 3.79 percent.

"Possible from the third to fourth quarter of this year, economic growth will be quite difficult, even possibly below 5.1 percent. That's not even taking into account the uncertain global economic factors," said Faisal.

Likewise, Bank Danamon economist Irman Faiz assessed that, in the future, economic growth will face more difficult challenges throughout the year due to the influence of the United States' tightening monetary policy, aka higher for longer. The trend of high interest rates can weaken domestic and global demand.

He also highlights the absence of temporary factors, such as Ramadan, elections, and the distribution of social assistance that will not be repeated for the rest of this year.

"The sluggish global demand can have an impact on the decline in our export performance throughout this year. The projection is that the economic growth could slow down to 4.9 percent in the second quarter and 5.0 percent throughout the year," said Irman.