Indonesia Needs to Take Multiple Steps to Achieve Expected Economic Growth

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The outlook for Indonesia's economy in 2025 is poor, with the OECD projecting growth of only 4.91 TP3T, well below the government's vision of 6-81 TP3T; the International Monetary Fund (IMF) October report expects growth of 4.91 TP3T, up 0.11 TP3T from earlier; RBI expects between 4.6-5.41 TP3T, with the government targeting 5.21 TP3T, higher than the World Bank (WB)'s 4.81 TP3T.

Looking at quarterly data, Indonesia's economic growth was 4.87% in the first quarter, rose to 5.12% in the second quarter, and then slowed to 5.04% in the third quarter, lower than the economists' expectations of 5.0%, due to the decline in investment growth from 6.99% in the second quarter to 5.04% in the third quarter, and the investment-to-GDP ratio of only 31.481 TP3T, the incremental capital output ratio (ICOR) is 6.245.

Compared to other countries, Indonesia has high ICOR and low economic efficiency. For example, Vietnam, Thailand, Malaysia, and India have ICOR of 4.6%, 4.4%, 4.5%, and 4.5%, respectively, while India's investment-to-GDP ratio is similar to Indonesia's, but with higher economic growth. India plans to reduce ICOR to 2.7 by 2030, while Indonesia needs an investment-to-GDP ratio of 49.96% to achieve 8% growth.

To achieve the growth target of 6 - 8%, the government needs toImproving economic efficiency, lowering the ICOR to 5 - 6;Promoting technological innovation, improving digital transformation coverage;Improving the ease of doing businessThe system is being reformed; the latest digital technology is being used;Identification of manufacturing leaders, pooling resources to improve its efficiency.

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