Amid the geopolitical instability and global economic uncertainty, Indonesia is entering 2024 with a rather strong outlook.

The country will continue to count on its strong domestic market for economic growth, powered by a growing middle-class population.

Indonesia’s companies, especially e-commerce that is driven by strong consumer demand, will also be on the rise, with a solid 20% year-on-year growth in corporate earnings. This presents an attractive opportunity for foreign investors to seek new avenues for growth, especially when many are avoiding the Asia Pacific region due to concerns over China’s sluggish economy.

In addition, the Asian Development Bank forecasts a lower inflation rate at 3% in 2024 as global supply chains stabilise and aggregate demand settles into a steady state. Despite some fluctuations, the currency has maintained its value relative to the US dollar, despite rising interest rates in the US.

Overall, Indonesia is projected to have a GDP growth of around 5%, putting it on par with China’s growth. The positive outlook contrasts with its ASEAN neighbours, which mainly rely on exports and tourism, and are vulnerable to the global economic slowdown.

Impact of the election

The presidential election in February 2024 could usher in a new leadership that might result in policy changes. Investors and business leaders will be concerned about fiscal debt and policy uncertainty, particularly in export strategies where policies may change on the whim of a potential new president. Recent research suggests that higher trade policy risks can lead to companies moving their supply chains out of the country, as part of a diversification strategy to mitigate risks.

Companies may also strategically hold off on making major investments with large sunk costs and prioritise projects which are smaller and more nimble. Investors seeking to mitigate these risks may also consider holdings stocks in less tradable sectors like telecommunications and utilities.

Would these risks outweigh the anticipated higher growth and impact Indonesia? It depends on the investors’ risks appetite. If the current political leadership retain power and stay on course with its policies, the mentioned risks could be lowered. And if there is a new government in place and it continues to pursue policies aligned with the current administration, we can expect the risks to be significantly reduced as well.