Regional economic growth in the second quarter of 2024 remained solid, primarily underpinned by the regions of Java, Sumatra and Balinusra. Economic gains in the Java and Sumatra regions were driven by increasing household consumption during the holy month of Ramadan, coupled with investment relating to the development of national strategic projects (PSN) and manufacturing. In Balinusra, economic growth stemmed more from higher exports, particularly of copper concentrate. Conversely, economic moderation in the Kalimantan region was influenced by weaker investment as a corollary of the restrained outlook for coal exports. Economic moderation was also observed in the Sulampua region as investment performance declined given the delayed completion of several national strategic projects (PSN). Economic improvements in the second quarter of 2024 in various regions were also reflected in the performance of several economic sectors. Agricultural activity increased in all regions in line with the ongoing harvesting season. In addition, performance also improved in mobility-related sectors, particularly in the Java region in response to stronger household consumption. Meanwhile, high growth in the mining sector was supported by improving exports, particularly in the Balinusra region.
Overall, economic performance in most regions is projected to record limited gains in 2024. Private consumption is increasing in all regions, supported by the general and local elections held in 2024 and improving revenues. Meanwhile, increasing investment in several regions, including Java and Sulampua, is driving economic improvements. In the Java region, higher investment is supported by increasing government infrastructure development and industrial projects, coupled with government spending given the improving realisation of Local Own-source Revenue (PAD) and Transfer Fund Allocation to Regions (TKD). Notwithstanding, persistently restrained PSN development realisation is contributing to economic moderation in the Sumatra region. In terms of exports, stronger export performance for the major commodities is driving economic improvements in the Kalimantan region, while an influx of inbound international travellers is supporting strong economic performance in the Balinusra region. By sector, limited economic gains in several regions in 2024 were confirmed by the performance of major economic sectors, tertiary sector improvements and manufacturing industry performance, all of which are still restrained in most regions, except in Java. Mining sector performance is improving, particularly in Kalimantan and Balinusra. Meanwhile, moderating construction activity was observed in the Sumatra region. Such developments strengthen indications of restrained economic improvements in Indonesia in 2024. Policy support to stimulate regional economic growth, therefore, must be strengthened, including financing support, which is discussed specifically in Part III Strategic Issue: Financing Sectors with High Leverage for the Economy.
Lower Consumer Price Index (CPI) inflation was recorded in most provinces in the second quarter of 2024. Nationally, CPI inflation in the second quarter of 2024 retreated to 2.51% (yoy), which is still within the national headline inflation target corridor of 2.5%±1%. Milder inflationary pressures stemmed from volatile food (VF) in response to additional post-harvest supply of various food commodities, which continued in the second quarter of 2024. Meanwhile, core inflation and administered price (AP) inflation were observed to increase in most regions. Spatially, only 10 (ten) provinces recorded inflation above the target range, with the highest rate in Highland Papua (Papua Pegunungan) at 5.65% (yoy).
CPI inflation is expected to remain under control and within the 2.5%±1% target in 2024, supported by stronger policy synergy between Bank Indonesia and the Government. Spatially, CPI inflation in all regions is also forecast to remain manageable. This is supported by the Bank Indonesia policy mix, which will remain consistently oriented towards consistently maintaining rupiah stability, and as a pre-emptive and forward-looking measure to ensure inflation remains under control within the 2.5%±1% target corridor in 2024. In addition, Bank Indonesia will continue strengthening policy coordination with the (central and regional) Government within the Central and Regional Inflation Control Teams (TPIP and TPID) through the National Movement for Food Inflation Control (GNPIP) in various regions. Coordination will be strengthened to manage volatile food inflation against a backdrop of productivity issues and intertemporal supply imbalances, which remain an ongoing concern.
Moving forward, persistently high global uncertainty and geo-economic risks will continue to demand attention. Strong economic growth in the United States (US) is supported by domestic demand and an accommodative fiscal policy stance. Similarly, economic expansion in India continues on the back of government stimuli and spending. On the other hand, the economic outlook for China remains sluggish. International commodity prices are seen to increase due to higher demand amid limited supply. Such factors could exacerbate global financial market uncertainty and the world economic growth outlook and, in turn, impact the economic outlook in various regions of Indonesia.
