Domestic Demand and Real Sector Support National Economic Recovery

Domestic Demand and Real Sector Support National Economic Recovery

Domestic economic activity continues to show an accelerated recovery trend. This condition is reflected in the increasingly vibrant real sector activity where the Indonesian Manufacturing Purchasing Managers’ Index (PMI) in July 2022 was again at an expansive level at 51.3. The PMI position in July 2022 was also higher than the previous month (June 2022) which was 50.2.

The expansionary level of Indonesia’s PMI has been recorded since September 2021 or for eleven consecutive months. In fact, Indonesia’s level of expansion is still above several other ASEAN countries such as Vietnam (51.2), the Philippines (50.8), Malaysia (50.6), and Myanmar, which are still experiencing contractions of 46.5.

“Of course this achievement cannot be separated from the role of various parties in the process of accelerating the recovery of economic activity after the Covid-19 pandemic, especially in encouraging an increase in domestic demand and supporting business activities,” said Coordinating Minister for Economic Affairs Airlangga Hartarto,

The impressive performance in real sector activities is evidence of the resilience of the domestic economy in the midst of ongoing global challenges. In fact, this performance was successfully achieved in the midst of a potential slowdown in global recovery. As the latest IMF report for the period of July 2022, which again lowered its projection for global growth in 2022 to only 3.2% (yoy), or a decrease of 0.4% compared to the April 2022 report. This condition has implications for potential foreign demand which is estimated will weaken.

Based on the survey results, the expansion rate of Indonesia’s manufacturing PMI experienced the highest rate of increase since April 2022. Generally, it is supported by increasingly solid domestic demand. The increase in domestic demand is an incentive for the business world to continue to increase production. As a result, new job opportunities are also widely opened which have a more inclusive positive impact.

The increasingly vibrant real sector activity was also confirmed by the results of the Business Activity Survey (SKDU) in the second Quarter of 2022. This was reflected in the Weighted Net Balance (WNB) of 14.13%, higher than the WNB in ​​the first Quarter of 2022 of 8.71 %. Improved business performance is in line with the easing of mobility restriction policies in various regions, then the celebration of National Religious Holidays (HBKN) which encourages demand, as well as the availability of production facilities.

In addition, the strengthening of output capacity in various sectors contributed to the increase in the value of Indonesia’s exports. Cumulatively, the value of Indonesia’s exports for the January-June 2022 period has even reached US$141.07 billion or grew by 37.11% (ctc). This achievement on the export side supports Indonesia’s trade balance, which has consistently experienced a surplus for 26 consecutive months.

“The government will continue to encourage the rise of production activity, especially in sectors that have a large multiplier impact. In addition, the simplification of various regulations is also continuously pursued as a form of the Government’s commitment to improving the ease of doing business in Indonesia,” said Coordinating Minister Airlangga.

Various macroeconomic indicators that are getting better have made Indonesia an investment destination for various countries. As of the second quarter of 2022, investment realization has reached Rp302.2 trillion, an increase of 35.5% (yoy), and created job opportunities for as many as 320,534 Indonesian workers. This investment achievement consisted of Foreign Investment (PMA) of Rp163.2 trillion or growing 39.7% (yoy) and Domestic Investment (PMDN) of Rp138 trillion with a growth of 30.8% (yoy).

Challenges arise from the increase in international raw material prices, as a result of global inflation. However, Indonesia’s inflation is still relatively subdued in the midst of a significant increase in inflation in various countries. In July 2022, inflation was recorded at 0.64% (mtm), 3.85% (ytd) and 4.94% (yoy). Inflation in July was mainly contributed by rising prices for red chilies, air freight rates, shallots, household fuels and cayenne pepper.

In addition, core inflation also rose to 2.86% (yoy), higher than the previous 2.63% (yoy), indicating that economic fundamentals are still stable. Inflation due to the global energy crisis can be mitigated through the government’s subsidy policy, while food inflation is caused more by disruptions in domestic supply of volatile food commodities due to weather conditions.

To anticipate this, the Government has prepared guidelines for responsive measures, including (i) Maintaining affordability of food prices through market operations, (ii) Increasing the supply of food commodities, through increasing productivity, (iii) Streamlining the distribution of food commodity supplies, ( iv) Conduct effective communication to shape public expectations of prices, (v) Implement regional cooperation to ensure the availability of basic food supplies, and (vi) Support the creation of a price stability ecosystem by maintaining a balance between supply and demand.

Finally, strong economic fundamentals continue to be supported by affirmative regulatory reforms in order to achieve sustainable economic growth. Various strategic and policy steps that are being optimized by the Government include increasing investment realization by optimizing the role of alternative institutions for financing economic development through the Indonesia Investment Authority (INA), accelerating the realization of National Strategic Projects (PSN), and increasing added value through downstreaming of superior commodities, such as stone. coal, nickel, and crude palm oil (CPO).