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Indonesia’s Economy Outlook 2023: Between Optimistic and Realistic

Liga Asuransi – Dear reader, how are you? At the end of 2022, I hope your business has been running well according to your expectations.

I am grateful that our company could run well in 2022; we overcame significant challenges due to the COVID-19 outbreak. 

On the other hand, we have successfully taken advantage of difficult times to build a new working platform by utilizing digital technology. 

In my opinion, the business challenge is still ongoing in 2023. When the pressure of the COVID-19 outbreak began to subside at the end of 2021, suddenly, there was a new challenge that was no less devastating: the war between Russia and Ukraine. It is ongoing until this date. Almost the entire world was affected, including Indonesia. 

Despite the negative impact of the war, Indonesia also has a positive effect due to the significant increase in prices for Indonesia’s export commodities. Coal prices increased significantly up to US$ 323.91 per ton in June 2022.

The increase in coal prices due to the uncertainty of gas supply to Europe has made several European countries reactivate coal power plants in anticipation of the electricity crisis in their regions.

In addition, the price of palm oil, Indonesia’s mainstay commodity, also experienced a significant price increase. Is this going to be the same in 2023? 

To find out what the challenges and business opportunities will look like in 2023 and the steps that need to be taken to deal with all these challenges, here we write down some opinions, information, and suggestions we gathered from various sources. 

A list of references is at the end of this paper.

If you are interested in this article, please share it with your colleagues, so they understand like you.

Indonesia’s Economic Outlook 2023

We all agree that all businesses in Indonesia must be able to reshape uncertainty into opportunity, complexity into clarity, and problems into potential.

According to a report by the Asian Development Bank (ADB) released recently, Indonesia’s economy is expected to grow by 5.4% in 2023. Inflation is projected to increase significantly in 2022 and remain elevated in 2023.

During 2022, robust consumer demand has more than offset lower government spending. But demand for Indonesia’s commodity exports has also been healthy, supporting growth and generating a fiscal revenue windfall.

Inflation averaged 4.6% in 2022 because of higher commodity prices and recent fuel price increases. It is projected to be almost 6.0% through June 2023 and to ease to below 4.0% by the end of 2023.

Three main headwinds continue to hamper recovery due to recurrent lockdowns in the People’s Republic of China (PRC), the Russian invasion of Ukraine, and slowing global growth. 

Economy 2023: Between Optimistic and Realistic

The government of Indonesia and the House of Representatives (DPR) have set several economic indicators that become benchmarks in the Macroeconomic Framework for the Principles of Fiscal Policy (KEM-PPKF) of the 2023 State Budget. 

From these indicators, there is optimism to see certainty that global conditions and the Indonesian economy will improve in 2023.

The Global Economic Situation

The global economic situation that needs to be watched out for is the potential end of the era of the explosion of raw material commodities exported abroad (commodity boom) at the end of 2023. 

This situation is influenced due to the potential weakening of the world economy and the threat of stagflation. Stagflation is an economic condition indicated by weaker economic growth and high unemployment. An increase usually follows this condition in prices or inflation.

Throughout the 2020-2022 pandemic, Indonesia experienced commodity blessings. This increase is because commodity exports from Indonesia to several countries have experienced price spikes at a time of high demand and limited world stocks. 

Indonesia’s exports show this in January 2022, showing a growth of 25.31 percent (yoy). Thus, exports in January 2022 amounted to 19.16 billion United States (U.S.) dollars.

In theory, economic growth is supported by four things: household consumption, exports/imports, government spending, and investment. 

Demand will automatically decrease if commodity exports return to normal and some countries enter a recession. As a result, domestic inflation will rise because the money in circulation cannot afford these abundant commodities.

Another thing is the conditions of the Russia versus Ukraine war that are uncertain when it will end. The war has been going on since February 2022 and has affected the global economy, including Indonesia. 

Global economic growth, which should have been able to grow after the pandemic, has been restrained due to the increase in commodity prices, especially petroleum and processed industrial products.

Global Economy Only Grows 2 Percent! 

Governor of Bank Indonesia (BI) Perry Warjiyo said that the risk of slowing global economic growth in 2023 needs to be anticipated. 

Perry said that high inflation in the world due to the food and energy crisis has also encouraged aggressive monetary policy, especially in the global benchmark interest rate increase. 

He estimates that the global economy in 2023 still has the potential to slow down with a growth of 2 percent, which was initially expected to reach 2.6 percent. 

The probability of a recession in the U.S. has now reached 60 percent. The likelihood of a recession is high in Europe as well. Furthermore, interest rate hikes, especially by developed economies, are expected to last longer. 

The Central Statistics Agency (BPS) reported that Indonesia’s economic growth throughout 2022 has consistently risen amid the shadow of recession. 

In the third quarter of 2022, the economy shot up 5.72 percent year-on-year (yoy). Every quarter, the third quarter was 1.81 percent higher, and cumulatively or throughout January-September 2022, Indonesia’s economy grew 5.4 percent yoy. 

The achievements over the last four quarters show Indonesia’s strong position during global economic conditions. In the fourth quarter of 2022, Indonesia’s economy grew 5.02 percent yoy. Then in the first quarter of 2022, it increased by 5.01 percent and the next quarter by 5.44 percent yoy. 

How is the Company to face the 2023 Challenges?

Bernard Marr of Forbes (please find the link below) looks ahead as a futurist specializing in the intersection of business and technology. He advises companies on how they can prepare for a rapidly changing world.

  1. Inflation and Economic Downturn

Companies can face inflation by establishing end-to-end, actionable visibility of spending by business process, function, cost category, and business unit, as well as reducing spending.

  1. Supply Chain Security

Companies should resist the urge to over-order to compensate for backlogs, which could worsen the situation. Instead, focus on long-term recovery and restructure your needs to prevent similar shortages in the future.

  1. Increasing Customer Expectations

Customers demand more immersive customer experiences in the real world and the metaverse.

Online retailers should consider adding extended reality (X.R.) experiences like virtual dressing rooms that allow customers to “try on” clothing, accessories, and makeup without leaving their homes.

No matter how you engage with consumers (online, offline, or a mix of both), ask yourself, “How can we add even more value for our customers by turning this interaction into an experience?”

  1. Accelerated Digital Transformation

Artificial intelligence (A.I.) is already starting to augment all our businesses, and that trend will continue to accelerate next year. At the same time, other technologies like 5G, blockchain, the cloud, and the Internet of Things (IoT) are building and speeding up A.I., enhancing each other.

This technology is rapidly creating a world of ever-faster technological developments. In response, every business must think of itself as a tech business. 

Companies need to re-design their processes and ensure their people have the skills required in a world where we increasingly collaborate with and work alongside capable and intelligent machines.

  1. The War for Talent Will Intensify

Companies in 2023 must be ready to cope with a continued talent shock. We’ve heard about the “War for Talent” for years, but now it feels like the war is deepening.

Companies across industries are facing massive gaps in vital future skills. They will need to re-skill or upskill vast workforce sections to prepare for the 4th industrial revolution. 

Companies should take on the onus of training talent by hiring people straight out of school, employing low-code or no-code software for critical needs, and instilling cultures of continuous learning.

To attract top talent, employers must offer a working environment appropriate for the new world of work, including job flexibility, authentic leadership, diversity, etc.

  1. Data and Device Security

Cyberattacks are on the rise, and ransomware and phishing scams are now a common occurrence. As businesses become more digital, they accumulate more data, which becomes highly attractive to cybercriminals that intend to steal it and hold organizations hostage to monetary demands.

Mobile and IoT devices are not immune to cybersecurity threats. Additionally, quantum computing is emerging, which could render existing security systems obsolete.

Companies can take steps to protect themselves by taking proactive measures like evaluating their data backup and recovery processes, conducting penetration testing and vulnerability scanning, and taking proactive steps to protect sensitive data and prevent cyberattacks.

  1. Sustainability

Climate change is the world’s most significant business challenge. Consumers demand transparency in sustainability practices and more eco-friendly products and services.

Companies can respond by viewing their business practices’ whole picture and auditing their supply chains. They should also consider switching to renewable energy, moving to more sustainable packaging, and allowing people to work remotely when appropriate (which can help lower emissions).

Although economic conditions in 2023 are full of challenges, it is unlikely to be as severe as the impact of COVID-19, which has made almost all economic activities stop around the world.

As explained above, the main economic challenge is high inflation, which causes business to be disrupted, and it still can run.

For all businessmen, the tips Bernard Marr recommended must be considered. One of the key points is that “every business must think of itself as a tech business”. 

I agree with Bernard because changing a company into a tech company makes the process simpler, effective, efficient, and easy to control.

Thank you for all your support during 2022; I wish you tremendous success in 2023. 

 

HAPPY NEW YEAR, 2023

 

Sources:

  1. https://ekonomi.bisnis.com/read/20221121/9/1600367/ancaman-2023-makin-ngeri-ekonomi-global-potensi-cuma-tumbuh-2-persen.
  2. https://emedia.dpr.go.id/article/ekonomi-2023-antara-optimistis-dan-realistis/
  3. https://www.adb.org/news/indonesia-economy-holding-well-2022-faces-headwinds-2023-adb
  4. https://www.forbes.com/sites/bernardmarr/2022/11/15/the-7-biggest-business-challenges-every-company-is-facing-in-2023/?sh=dc5c82156886

 

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