By Fayza Nawra Avanitanya, Muthia Noor Safitri, Kenzie Aryasatya, Imam Fakhri Prayogo Harianto
February 7th, 2025 at 16:30 GMT+7
The global economic landscape is facing several challenges, with indications that the U.S. Federal Reserve may consider rate cuts later in 2024 due to a significant slowdown in inflation. The upcoming U.S. presidential election introduces further uncertainty, as historical patterns suggest that pre-election periods often lead to market volatility. Each candidate’s unique policies heighten investor sensitivity, resulting in more erratic market behavior.
Additionally, ongoing global tensions and conflicts are disrupting the supply of commodities, particularly in the energy and food sectors. These disruptions have driven up production costs and contributed to a broader slowdown in economic growth. Collectively, these factors create a complex global environment that requires cautious navigation by both investors and policymakers.
Despite facing numerous global challenges, Indonesia stands out positively due to its newly established government, which is prioritizing sustainable development as a core policy goal. One significant initiative is the free lunch program designed to enhance student nutrition and improve educational outcomes, potentially boosting growth in the consumer sector.
While this program reflects the government’s dedication to social innovation, the substantial budget allocation raises some concerns. Estimates indicate that this could increase the overall budget deficit to around 2.7% of GDP, which in turn raises concerns about long-term fiscal sustainability and investor confidence. As Indonesia strives to balance ambitious domestic policies with global economic challenges, Indonesia is navigating a path that holds promise yet requires careful fiscal management.
Indonesia’s equity market remains indecisive, with the Jakarta Composite Index (JCI) posting a modest 6.03% return year-to-date through June 2024, while blue-chip indices like LQ45 have declined amid persistent foreign investor outflows. A weakening rupiah and the Federal Reserve’s hawkish stance have fueled market volatility, keeping investors cautious.
However, the JCI’s price-to-earnings (PE) ratio of 13.4x suggests recovery potential. If global conditions improve and the Fed implements expected rate cuts, market confidence could rebound. Indonesia’s ability to adapt to global trends while maintaining domestic stability will be key to restoring investor trust and attracting sustained foreign investment in the long run.
Sources:
CBS News
CNN
Reuters
24th ICMSS
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