With the economic struggles of many emerging markets, Indonesia has been one of the few bright spots. The economy is expected to meet expectations and grow 5% this year, the fourth highest rate among emerging markets. The fact that Indonesia has been able to keep its economy growing is impressive, especially with the many outside factors that have significantly impacted other emerging markets.
Indonesia long relied on exports of natural resources to China to create economic activity, and when China’s economy started to slow down, Indonesia felt the impact. The country, which had previously expected GDP growth rates of 7%, was seeing rates of 4.5%. For this reason, analysts are optimistic about the new growth numbers for the country, which are the highest in over 2 years. The economic data seems to suggest Indonesia has positioned itself to be more independent of outside factors, such as low commodity prices worldwide and low demand from China.
Earlier this year, the International Monetary Fund highlighted Indonesia’s resilience, and pointed to the country’s investments in infrastructure as a major reason for the improved economic conditions. Indonesia has also implemented reforms to improve the business climate and reduce unnecessary regulations. Further reforms are needed, along with continued diversification of the economy, but the IMF official was optimistic that the economy can continue to move toward its previous growth numbers.
Regionally, Indonesia has been more successful dealing with China’s slowdown than neighbors Malaysia and the Philippines, and this summer Indonesia topped both countries to become ASEAN’s most valuable economy. If Indonesia can continue along its path of improved economic growth, the country could become a strong leader of the trade bloc. Indonesia has already seen its trade relationship with the United States grow in recent years to replace lost trade from China, and some estimates predict up to 50% growth in trade between the countries by the end of the decade.