PROGRES.ID – The World Bank has noted that there are three conditions that could weaken economic growth in the East Asia and Pacific region, including Indonesia, until 2024. These three factors are related to the increasing debt problem, the slowdown of the Chinese economy, and the instability in global trade.
In the World Bank’s East Asia and Pacific (EAP) October 2023 Economic Update report, it is projected that economic growth in the East Asia and Pacific region will only reach 5% in 2023, lower than the previous projection in April 2023 of 5.1%. The projection for 2024 has also been revised down to 4.5% from the previous projection of 4.8%.
For Indonesia, the projection of its economic growth has been updated to 5.0% from the previous projection in April of 4.9%. However, for 2024, Indonesia’s economic growth is only projected to be 4.9%, remaining unchanged from before. Similarly, for China, the projection of its economic growth in 2023 remains at 5.1%, but for 2024, the projection has decreased from 4.8% to only 4.4%.
Aaditya Mattoo, the Chief Economist for the World Bank’s East Asia and Pacific region, explained that one of the main factors impacting economic growth is the increasing debt of countries in this region since the beginning of the Covid-19 pandemic. This has resulted in fiscal constraints, hindering public investment and burdening private investment.
“So, the region known for being frugal is now experiencing very high levels of debt. This high debt is not only evident in one country or government but also in the corporate sector or households,” Mattoo said, as reported by CNBC Indonesia on Monday (2/10/2023).
Mattoo emphasized that the high level of debt has increased over the past decade in various countries in the region. For example, Indonesia’s government debt increased from 25% of Gross Domestic Product (GDP) in 2010 to the current 39% of GDP. China experienced a similar increase, from 25% to 51%, as did Thailand, from 28% to 54%, and Malaysia, from 48% to 60% of their respective GDPs.
Furthermore, household debt in Indonesia has also increased, from 14% to 16% of GDP, while in China, household debt surged from 27% to 62%, and in Thailand, from 59% to 86%. Non-financial corporate debt has also increased, such as in Indonesia from 15% to 25%, China from 115% to 172%, and Vietnam from 74% to 112%.
Mattoo warned that high debt levels across various sectors mean limited investment resources for governments, households, and companies.
“High household sector debt means they have little disposable income, and for governments and corporations, it means reduced investment resources,” Mattoo said.
The second factor that could hinder future growth is the slowdown of the Chinese economy, which has been the main engine of economic growth in the region and the world. In addition to increasing debt, this slowdown is also influenced by a weak property sector and structural factors such as an aging population.
China is also undergoing reforms from a growth model that has been reliant on investment in infrastructure and real estate. This is primarily due to the fact that economic growth through this method has been slowing down, causing many companies and households to accumulate more debt and a decline in the value of their property assets.
However, China is also striving to transition to a more inclusive economic growth model by increasing consumption and investment.
“At the same time, China is striving to transition away from such a growth model, which relies on consumption and investment, especially to ensure that its growth is more inclusive,” he said.
The third factor that could affect economic growth is the tightening of the global trade environment. In addition to slowing global demand, this issue is also caused by geopolitical tensions in various regions, including between China and the United States, which have made trade one of the instruments of tension to implement restrictive policies.
Mattoo emphasized that despite these challenges, reform in the service sector and the utilization of digital technology can be drivers of economic growth in the region in 2024. The service sector has proven to be a significant factor in driving economic growth in recent years.
“Reforms in the service sector and digitization can create a virtuous cycle in enhancing economic opportunities and developing human resource capacity, which will promote development in this region,” Mattoo said.