Jakarta. Finance Minister Sri Mulyani Indrawati is closely monitoring how the recessions in advanced nations, including Japan and the United Kingdom, may impact Indonesia’s economy.
Speaking after the Annual Meeting of the Financial Services Industry 2024 in Jakarta on Tuesday, she acknowledged that the global economic outlook, especially for G-7 nations, is expected to weaken due to the ongoing recession.
According to Sri Mulyani, economic challenges faced by several advanced nations are influenced by a significant increase in interest rates to combat inflation.
“This year, various institutions have projected a downturn in the economic performance of these advanced countries,” she added.
The International Monetary Fund (IMF) forecasts global economic growth to reach 3.1 percent in 2024 and 3.2 percent in 2025. Meanwhile, the World Bank predicts a decrease in growth, falling from 5 percent in 2023 to 4.9 percent in 2024 and 2025.
IMF expects inflation to ease, with global headline inflation projected to decrease to 5.8 percent in 2024 and further to 4.4 percent in 2025.
The Finance Minister highlighted the geopolitical impact of the Russia-Ukraine war on the economies of recession-affected advanced nations.
“These recession-hit advanced countries, as mentioned, are already quite fragile,” she remarked.
The UK entered a recession at the end of 2023, with the GDP contracting by 0.3 percent in the fourth quarter of 2023, following a 0.1 percent decline in the third quarter.
Japan reported the economy shrank at an annual rate of 0.4 percent from October to December. Previously, the country’s GDP contracted 2.9 percent in July-September. Two straight quarters of contraction are considered an indicator an economy is in a technical recession.
Limited Impact
Economist Eko Listiyanto from the Institute for Development of Economics and Finance (Indef) said the impact of the recession is reflected in Indonesia’s domestic trade balance surplus narrowing by 48 percent to $2.02 billion in January 2024 from the same period last year.
“The diminishing surplus indicates a slowdown in the global economy, particularly in terms of exports,” explained Eko Listiyanto during an interview at the Indonesia Stock Exchange in Jakarta on Tuesday.
However, Eko said the impact of the recession in Japan and the UK on the national economy remains limited and moderate. Japan, contributing only about 7 percent to Indonesia’s exports, is expected to have a more pronounced effect on investments, especially given its substantial investments in Indonesia.
“Perhaps the direction of investment from countries experiencing a recession will decline towards us,” he suggested.
Despite the recession, projects like the underground and elevated railway construction in Jakarta and surrounding areas funded by Japan are expected to proceed as planned. Tuhiyat, CEO of MRT Jakarta, reassured that the budget from the Japanese government remains intact, ensuring the optimal progress of the project.
“There is no impact because the budget from the Japanese government is ongoing,” he said in Jakarta.
Tuhiyat is confident that the development stages of the MRT Jakarta project, supported by Japanese funding, will continue to progress optimally. Currently, MRT Jakarta is awaiting the signing of a loan agreement with the Japan International Cooperation Agency (JICA) for Phase 1 of MRT Jakarta East-West Line, targeted for April 2024.
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