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Economic performance in various regions in the second quarter of 2023 is expected to grow on the back of growing domestic demand. Domestic demand increased in line with the removal of community activity restrictions (PPKM) at the end of 2022, along with national religious holiday (HBKN) celebrations. Private consumption is forecast to increase, supported by solid consumer confidence and income expectations amid regional fiscal stimuli in the second quarter of 2023. Meanwhile, second-quarter investment in 2023 remained solid given the ongoing completion of national strategic projects (PSN) in several regions, including development of the new capital city in Kalimantan. In the midst of such developments, global economic dynamics affect the export performance in various regions. Consequently, national economic growth in 2023 is projected to remain in the 4.5-5.3% range.

Composite CPI inflation for cities in all regions returned to the target corridor in the second quarter of 2023, thus supporting the inflation target in 2023. Nationally, Consumer Price Index (CPI) inflation stood at 3.52% (yoy) in the second quarter of 2023, down from 4.97% (yoy) in the first quarter of 2023. CPI inflation, therefore, successfully returned to the national inflation target of 3.0%±1% in 2023.  Milder inflationary pressures were recorded in all regions, supported by all disaggregated inflation components, namely core inflation, administered prices (AP) and volatile food (VF). This is in line with managed inflation expectations, underpinned by various policies to control inflation, lower international commodity prices, government policy to adjust non-subsidised fuel prices and lower airfares, as well as the stable supply of strategic food commodities, supported by synergy to manage food inflation. A consistent pre-emptive and forward-looking monetary policy response maintained stable inflation within the target corridor. In conjunction with the Government as well as the Central and Regional Inflation Control Teams (TPIP and TPID), Bank Indonesia is committed to continuously strengthen the National Movement for Food Inflation Control (GNPIP) to manage VF inflation. Looking ahead, Bank Indonesia is confident inflation will remain manageable within the 3.0%±1% target corridor for the remainder of 2023.

This edition of the Nusantara Report specifically raises the strategic issue of “The National Economic Leverage Strategy".  Structural efforts to accelerate the pace of economic recovery amidst dynamic global economic challenges must be sustained, such as through downstreaming of food crops and strengthening the housing sector. Food crop downstreaming is aimed to increase value-added, manage inflation as well as nurture inclusive and sustainable economic growth. Furthermore, policy support on the supply and demand sides is required to strengthen property sector performance as a lever for the national economy.