TABLE OF CONTENT
I. Global Economic Performance and Outlook:
Slowing Growth, High Uncertainty 6
II. NationalEconomicPerformanceandOutlook:
Maintained Stability, Rising Growth 14
Bank Indonesia Policy Mix 2024:
III. MaintainingStability,SupportingSustainableGrowth 27
• Conception of the Bank Indonesia Policy Mix 28
• Monetary Policy 31
• Macroprudential Policy 36
• Payment System Policy 40
• Money Market and Foreign Exchange Market Deepening 44
• Development of the Sharia Economy and Finance and MSMEs 49
• International Policy 51
• Bank Indonesia Transformation 53
IV.SynergyofPolicyMixforNationalEconomicTransformation:
Strengthening Stability, Driving High Growth 56
• Policy Mix Synergy for Stability 58
• Policy Mix Synergy for Domestic Demand 61
• Policy Mix Synergy for Economic Capacity 65
• Policy Mix Synergy for Financial Sector Deepening 70
• Policy Mix Synergy for Accelerating Digitalization 72
• Medium-Term Economic Outlook for Indonesia 73
V. DirectionofBankIndonesiaPolicyMixin2025:
Maintaining Stability, Driving Sustainable Growth 76
• Direction of Monetary Policy 77
• Direction of Macroprudential Policy 80
• Direction of Payment System Policy 84
• Money Market and Foreign Exchange Market Deepening Policy 92
• Inclusive and Green Economy-Finance Policy 96
• International Policy 97
• Institutional Transformation Policy 98
MovingForwardwithOptimismandVigilance:
VI. StabilityandNationalEconomicTransformationtoward
 the2045GoldenIndonesia(IndonesiaEmas2045) 101
SYNERGY TO STRENGTHEN STABILITY AND
NATIONAL ECONOMIC TRANSFORMATION
Remarks of the Governor of Bank Indonesia
BANK INDONESIA ANNUAL MEETING
Jakarta, 29th November 2024
We are honoured to welcome,
The President of the Republic of Indonesia, Gen (Ret.) Prabowo Subianto
With respect to the honourable,
• Leaders and Members of DPR and DPD RI,
• Leaders of State Institutions,
• Excellencies, Ambassador of friendly countries,
• Ministers of the Red and White Cabinet,
• Chairman and Members of the OJK and the LPS Board of Commissioners,
• Former Governors and fellow Members of the Board of Governors of Bank Indonesia,
• Regional Governors, Mayors and Regents from throughout Indonesia,
• Leaders of the National Banking Industry, Corporate Sector, and National Media,
• Recipients of the 2024 Bank Indonesia Awards,
• Esteemed guests.
Assalamu'alaikum Warahmatullahi Wabarakaatuh,
Peace and prosperity be upon us all, Syalom,
Om Swastyastu, Namo Buddhaya,
Greetingsofvirtue,
First of all, let us express our gratitude for the presence of Allah Subhanahu Wa ta'ala (SWT), God Almighty,
for His mercy and blessing that allow us to gather at the 2024 Bank Indonesia Annual Meeting this evening.
With all humility, we would like to express our utmost gratitude to the President, for his presence, along with
all distinguished guests, and for providing direction to strengthen policy synergy to enhance stability and
national economic transformation moving forward.
We extend our congratulations to the banks, corporations, and individuals that received Bank Indonesia
Awards 2024, totaling 51 (fifty-one) recipients in 5 (five) areas and 20 (twenty) categories in the fields of
monetary stability management, macroprudential, payment system, MSMEs development and the sharia
economy, as well as supporters of Bank Indonesia policy. The awards are presented annually in conjunction
with the Bank Indonesia Annual Meeting as a form of appreciation and national recognition to our partners
that have supported the implementation of Bank Indonesia's tasks.
On this auspicious occasion, allow me to present the evaluation of Indonesia's economic performance for
2024, the economic prospects and policy direction of Bank Indonesia in 2025, which summarized under
the theme SynergytoStrengthenStabilityandNationalEconomicTransformation. We should be grateful
that Indonesia's economy performed well in 2024. Economic growth was relatively high with maintained
stability. This performance was achieved amidst highly dynamic global economic uncertainty. Strong synergy
of national economic policy mix between Government and Bank Indonesia is the key aspect of achieving
robust national economic performance. This policy mix synergy must be enhanced to strengthen stability and
national economic transformation toward the 2045 Golden Indonesia (Indonesia Emas 2045) vision.
I will deliver my presentation in 5 (five) main parts. First, an evaluation of global economic performance and
the outlook, which are full of dynamics, risks and uncertainties. Second, an evaluation of domestic economic
performance and the outlook, which has demonstrated resilience and continued recovery. Third, a report
and evaluation of the policy mix implemented by Bank Indonesia in 2024 to maintain stability and support
sustainable economic growth. Fourth, synergy of national economic policy mix between the Government and
Bank Indonesia to strengthen stability and national economic transformation moving forward. Fifth, Bank
Indonesia's policy direction in 2025 to strengthen stability and foster sustainable economic growth. This
explanation also serves as the fulfillment of Bank Indonesia accountability and transparency as mandated by
Bank Indonesia Act.
I. Global Economic Performance and European Union and the UK, which could spur
Outlook: Slowing Growth, High retaliation from these countries. Strict immigration
Uncertainty policies will also be introduced against illegal
foreign workers, while foreign policy toward
Global economic dynamics changed rapidly NATO, Russia-Ukraine and the Middle East could
accompanied by heightened uncertainty. At the reshape the global geopolitical landscape. To
beginning of 2024, geopolitical tensions remained stimulate domestic economic growth, the new
high given the ongoing conflict between Russia and US Administration is predicted to cut corporate
Ukraine. After a brief respite, geopolitical tensions tax and personal income tax, thereby increasing
have marked another round of escalation, triggered the fiscal deficit from 6.5% to 7.7% of GDP in
by Israeli attack on Palestine. Toward the end of 2025 and raising US government debt going
2024, the re-election of President Trump in the forward. The result of the US Presidential Election
United States (US), with his America First policy, undermined global financial market conditions
could lead to a significant change in the geopolitical in the fourth quarter of 2024 and is anticipated
landscape and world economy moving forwards. to trigger global economic slowdown moving
Initial assessments indicate the possibility that the forwards along with the growing risk of trade and
new US Administration under President Trump will investment fragmentation.
impose high tariffs on countries maintaining a large
trade surplus with the US as part of its international Volatilegeopoliticaldynamicshaveshapedglobal
policy (Figure 1.). Such countries could include economicandfinancialmarketperformance
China, Mexico, Japan, and Vietnam, and several throughout 2024, and are expected to persist
European countries. For instance, high tariffs may in2025andbeyond. Overall, global economic
be imposed on imports of machinery/electronic growth in 2024 is expected to moderate to 3.2%,
goods and chemicals from China as well as imports from 3.3% in 2023, with a further slowdown
of iron, aluminium, and motor vehicles from the projected to 3.1% in 2025 and 3.0% in 2026
Figure1.InitialAssessmentoftheImpactofTrump'sVictoryontheUSandGlobalEconomy
2. IMPACT ON THE
1. IMPACT ON THE
THE DIRECTION OF
US ECONOMY GLOBAL ECONOMY
TRUMP'S POLICY
RISK
MAIN POLICIES:
Commodity market:
Tariffs increase Tax cuts increase
TAX CUTS Extending the tax cut policy set to expire in
import prices domestic demand
2025, including:
TRADE
SUPPLY DISRUPTION:
Personal tax cut: approximately a 3% reduction in each FRAGMENTATION:
TRADE WAR,
income bracket The USA, China, Mexico, Canada,
Migrant restrictions
SANCTIONS
Euro Area/the United Kingdom
Corporate tax cut: a flat rate of 21%
tighten the labor GEOPOLITICAL
market
FISCAL DEFICIT
ENERGY DOMINANCE:
2025, it increases from 6.5% to 7.7% of GDP
TRADE DIVERSION:
OIL SUPPLY
2026, it increases from 6.0% to 8.8% of GDP
Tax cuts increase FISCAL DEFICIT ASEAN, Latin Amerika
DEMAND
FFR
demand-pull inflation
WIDENS
CONFLICT
FOR ASSET
Euro Area/United Kingdom, China
FISCAL
TARIFFS
SUSTAINABILITY
25%: steel, aluminium, motor vehicles from the Euro Area/UK,
(Effective in Semester II-25)
Bond issuance
followed by retaliation
increases
25%: machinery/electronics and chemicals from China. China
retaliates with 10%
IMMIGRATION Reducing immigration, tightening customs
Increasing penalties for illegal entry and overstaying GLOBAL
EXPORT COMMODITY PRICES GLOBAL GDP
INFLATION
Deportation of illegal immigrants OIL PRICES
(2025-26) GROWTH
(2025-2026)
INFLATION UST YIELD Ensuring NATO members meet the requirements for fiscal
GEOPOLITICAL
spending of 2% of GDP on defense
RISES RISES
Cut aid to Ukraine. Ending the conflict in Ukraine through
negotiations with Russia
Settling the conflict in the Middle East
SMALLER CUTS IN GLOBAL
SMALLER CUTS IN THE FFR,
UST YIELD RISES
INTEREST RATES
UST YIELDS RISING
Notes:
FLOWS INTO U.S.
- Trade tariffs (supply shock) have a negative impact on GDP USD STRENGTHENS
FINANCIAL ASSETS
and a positive impact on inflation.
- Tax cuts (demand shock) have a positive
impact on both GDP and inflation
EXCHANGE RATE DEPRECIATION AND FOREIGN PORTFOLIO INVESTMENT OUTFLOWS FROM EMEs
Source: Bank Indonesia, adapted from various sources
Table1.GlobalEconomicGrowthPerformanceandOutlook(%)
2022 2023 2024* 2025* 2026*
World 3.5 3.3 3.2 3.1 3.0
Advanced Economies 2.6 1.7 1.8 1.7 1.8
United States 1.9 2.9 2.7 2.1 2.3
Euro Area 3.4 0.4 0.8 1.2 1.3
Japan 1.0 1.9 0.0 1.2 0.6
Emerging Economies 4.1 4.4 4.2 4.1 4.0
China 3.0 5.2 4.8 4.5 3.9
India 6.8 7.7 7.0 6.7 6.7
ASEAN-5 5.5 4.0 4.8 4.8 4.8
Latin America 4.2 2.2 2.1 2.4 2.5
Note: *Bank Indonesia's Projection
Source: WEO-IMF, Bank Indonesia
(Table 1.). Divergence in growth patterns across strong on the back of domestic demand despite export
countries continues, accompanied by increasing constraints as a corollary of economic moderation
global economic and trade fragmentation. The US and global trade fragmentation. Global inflation eased
economy, which is expected to moderate in 2024, is from 6.2% in 2023 to 5.2% in 2024 and 4.5% in
forecasted to rebound in 2025, although the risk of 2025, yet is projected to rise to 4.8% in 2026 amidst
economic overheating looms with the widening fiscal potential trade war between the US and several of its
deficit and growing government debt. GDP growth key trading partners, coupled with global supply chain
in China and Euro Area are expected to moderate in disruptions (Graph 1.).
response to persistently sluggish domestic demand
and the potential impact of high trade tariffs Geopoliticalandglobaleconomicdynamicshavea
imposed by the new US Administration. Economic substantialimpactonthemonetarypolicyofcentral
growth in Indonesia, India, and several other banksandglobalfinancialmarketdevelopments.
emerging market economies (EMEs) remain relatively Financial market uncertainty remained elevated in the
first half of 2024 due to geopolitical tensions between
Graph1.GlobalInflationTrends
Russia and Ukraine as well as the Israeli attack on
Palestine. Sovereign risk premia in EMEs, as reflected
%, yoy
by Emerging Market Bond Index (EMBI) spread,
12
increased sharply from 270 in April 2024 to 380 in
10
August 2024 (Graph 2.a.). Similarly, global financial
8
market volatility (VIX) and Credit Default Swap (CDS)
in Indonesia also tracked upward trends (Graph 2.b.).
6
In the third quarter of 2024, as geopolitical tensions
4
eased and the global disinflation process continued,
central banks began lowering monetary policy rates,
2
including the Federal Reserve which eventually started
0
2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10
reducing the Federal Funds Rate (FFR) in September
2019 2020 2021 2022 2023 2024
2024. Monetary policy easing had a positive impact
Global Inflation AEs Inflation EMEs Inflation
on global financial markets. The US dollar index
against global currencies (DXY), which hit 105 at
the beginning of 2024 subsequently retreated to Administration. The primary source of economic
around 101 in September 2024, along with a similar growth is domestic demand, particularly the services
downward trend observed in EMBI spread (Graph sector and investment in information technology and
2.a.). Nevertheless, the results of the US Presidential financial services. Incrementally milder inflationary
Election and unresolved geopolitical tensions in the pressures have prevailed, with disinflation moving
Middle East adversely affected financial markets toward the medium-term target of approximately
and the monetary policy direction of central banks. 2%. Such developments prompted a 50bps cut in the
Smaller reductions in the FFR and other monetary Federal Funds Rate from 5.5% to 5.0% in September
policy rates are expected moving forward. The US 2024, with a further 25bps decrease to 4.75% in
dollar faced sharp, broad-based appreciation, with November 2024 and a similar 25bps reduction
the DXY index recorded at 107 recently (Graph 2.a.). expected in December 2024, bringing the FFR to
Similarly, US Treasury yields, which had tracked 4.5% at the end of 2024. FFR cuts are expected
a downward trend in line with the lower FFR, to persist with another 50bps adjustment to 4.0%
rebounded strongly across all maturity periods. anticipated in 2025 (Graph 3.a.). The downward FFR
Sovereign risk premia in EMEs and global financial trend spurred lower US Treasury yields on short-term
market volatility saw a renewed increase. Such maturities, contrasting the upward trend of
developments triggered a reversal of portfolio flows mediumlong-term US Treasury yields due to the widening
and exchange rate depreciation in EMEs, forcing a fiscal deficit and massive debt burden of the US
stronger national policy responses to address the Government (Graph 3.b.). Notwithstanding, the
adverse impact of deteriorating global economic reelection of President-elect Trump, complemented
dynamics. by Republican victories in the Senate and House,
could change US economic dynamics significantly in
TheUSeconomyexhibitedslightsofteningin2024 the near future. Economic growth in the US could
yet is expected to rebound moving forward given regain momentum on higher demand for investment
thepoliciesoftheincomingAdministration. US and domestic consumption given the proposed cuts
economic performance remained comparatively to corporate tax and personal income tax. Likewise,
solid until the middle of 2024, yet subsequently external sources of growth will also increase due
slowed down and is projected to moderate to 2.1% to lower imports caused by high tariffs imposed on
in 2025. However, US economic growth could countries maintaining a large trade surplus with the
potentially rebound with the policies of the incoming US. On the other hand, inflationary pressures are
Graph 2.a. Trends in the US Dollar and EMEs Graph 2.b. Trends in Global Financial Market
Risk Premium Volatility
Index Index bps Index
US Dollar Appreciation vs
390 109 85 45
Major Currencies
40
370 107
80
35
350 105
30
75
330 103
25
20
310 101
70
15
290 99
10
65
270 97
5
250 95 60 0
1 2 3 4 5 6 7 8 9 10 11 1 2 3 4 5 6 7 8 9 10 11*
2024 2024
EMBI Spread US Dollar Index (rhs) Credit Default Swap (CDS) Indonesia Volatility Index (VIX) rhs
Note: *Data as of 18 Nov'24 Note: *Data as of 18 Nov'24
Source: Bloomberg Source: Bloomberg
Graph3.a.ProjectionoftheFederalFundsRate Graph 3.b. Structure of the US Treasury Yield
(FFR)
% % %
6 5.5 0.8
0.6
5
5.0
0.4
0.2
4
4.5
0
3
-0.2
Yield
4.0
2 -0.4
-0.6
3.5
1
-0.8
3.0 -1.0
0
3 6 1 2 5 10 30
2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12
MONTH MONTH YEAR YEAR YEAR YEAR YEAR
2022 2023 2024 2025 2026 Tenor
Δ '24 - '23 ytd (rhs) Dec'23 Oct'24 *Nov'24
Actual Projection
Note:*Data as of 15 Nov'24
Note: FFR uses the lower bound. Projections use the Taylor and Yellen Rules.
Source: Bloomberg
Source: FRED, Bank Indonesia's Calculation
expected to return as a result of increasing domestic inflation deceleration process toward the 2%
demand, higher import prices due to higher tariffs, inflation target in the medium term. Nonetheless,
and rising wages given highly stringent immigration as mentioned previously, the results of the US
policy. Furthermore, the US economy will be Presidential Election are expected to spur economic
overshadowed by the risk of economic overheating moderation and a build-up of inflationary pressures
in response to the widening fiscal deficit and growing in Europe due to the possible imposition of trade
government debt. The impact of US economic tariffs by the US Administration, resulting in smaller
dynamics is already perceptible in the financial reductions expected by the ECB to its key interest
markets, as reflected by higher US Treasury yields rates.
for all maturities, sharp and broad-based US dollar
appreciation, as well as smaller FFR reductions than In the Asian region, China's economy is in a declining
previously expected. trend. Economic growth in China is expected to
decelerate from 5.2% in 2023 to 4.8% in 2024, with
Meanwhile, a sluggish economic recovery is a further decline to 4.5% in 2025. Inflation in 2024
lingering in the Euro Area. Growth in 2024 is is lower than projected, however, at just 0.4%, which
expected to remain below the historical average is expected to remain low at approximately 1.7%
at 0.8%, and is forecasted to reach 1.2% in 2025. in 2025 on the back of weak domestic demand.
Weak growth stemmed from subdued consumption Domestic economic moderation is resulted from
in line with the saving and investment preferences muted consumption in response to deteriorating
of households that prioritise financial assets for consumer confidence and low exports given
investment. Consequently, Euro Area registered declining manufacturing performance globally and
a faster disinflation process than the US, with the the ongoing trade tensions with the US (Graph 4.a.).
European Central Bank (ECB), therefore, cutting its A slowdown has been experienced across nearly all
policy rate earlier and deeper than the US Federal economic sectors, particularly the ongoing decline
Reserve. Hitherto, the ECB has lowered its policy in the property market, accompanied by slower
rate by 75bps from 4.00% to 3.25%, with a further manufacturing and services growth. Monetary and
reduction of around 25bps to 3.00% expected at the fiscal stimulus from the central bank and government
end of 2024 before decreasing another 100bps to have, thus far, been insufficient to offset economic
2.00% by the end of 2025 in line with the ongoing
decline. The People's Bank of China (PBoC) has bring inflation back to its medium-term target.
introduced monetary stimulus by lowering interest From a fiscal perspective, the election of a new
rates on housing loans and reducing the minimum Prime Minister in Japan will sustain gradual fiscal
statutory reserve requirements, while providing consolidation until 2026. Fiscal and monetary policy
swap facilities with property shares as collateral. coordination in Japan is expected to boost national
On the other hand, the Chinese Government has economic performance, with inflation projected
introduced fiscal stimulus by raising social assistance to fall to 2.0% and GDP growth to accelerate to
for public consumption and allocating funds to 1.2% in 2025. Nevertheless, the impact of the US
regional governments, among others. Looking ahead, Presidential Election will demand vigilance in terms
the fiscal stimulus could potentially be increasingly of the trade relationship between Japan and the
constrained due to large fiscal deficit in both United States.
onbudget and off-budget, which are projected to reach
3.1% and 10.0% of GDP, respectively (Graph 4.b.). As Amidstthebroad-basedeconomicmoderation,
stated previously, the results of the US Presidential the Indian economy has performed well and
Election could intensify pressures on economic supported global economic growth. India's
moderation in China with the possible imposition of GDP in 2024 and 2025 is projected to remain
trade tariffs by the incoming US Administration. high at 7.0% and 6.7%, respectively, despite
moderating from 7.7% in 2023 in response to
The economic recovery in Japan remains weak. the global economic downturn. Consumption has
Japan's economy in 2024 is expected to be stagnant, maintained robust growth, underpinned by urban
with growth of 0.0%, down from 1.9% in 2023, and rural labor absorption. Private investment,
primarily dampened by a manufacturing and export including building and non-building investment,
downturn in line with the global economy, while and the service sector are projected to improve
consumption has remained solid owing to real in line with domestic consumption. Meanwhile,
wage improvements. Inflation in 2024 remains export performance weakens, consistent with the
high at approximately 2.2% due to rising wages global slowdown, which subsequently leads to a
and a weaker yen exchange rate, which is projected slowdown in manufacturing expansion (Graph 5.a.).
to fall to 2.0% in 2025. The inflation trend has Economic easing in 2025 will also stem from the
compelled the Bank of Japan (BoJ) to raise interest direction of fiscal consolidation implemented by the
rates and continue tightening monetary policy to
Graph4.a.DomesticDemandofChina Graph4.b.FiscalConsolidationofChina
% GDP
%, yoy Index
30 130
0
-2.8 -2.8
-3.1 -3.1 -3.1 -3.0
-3.7
25 125 -3.9
-2
20 120
-4
15 115
-6
2.4
10 110
-9.0
-9.7
-9.9
-10.6 -10.1 -10.0
-8
-9.1
3.4
5 105
3.2
-10 -13.3
3.6
0 100
-12
-5 95
-12.1
-12.5
-14
-10 90 -12.9
-13.0
-13.2 -13.1
85.7 -13.4
-16
-15 85
-17.0
-20 80 -18
I II III IV I II III IV I II III IV I II III IV I II III IV I II III 5 6 7 8 9
2019 2020 2021 2022 2023 2024 2025* 2026*
2019 2020 2021 2022 2023 2024
Retail Sales Consumer Confidence Index (rhs) On-budget fiscal balance Off-budget fiscal balance
Export Fixed Asset Investment Activity Index Augmented fiscal balance
Note: *IMF Projection (Article IV 2024)
Source: Bloomberg, NBS Source: Ministry of Finance of China, IMF
Government, with the fiscal deficit narrowing from economic resilience in order to sustain economic
5.6% to 4.9% of GDP, coupled with lower subsidies recovery over the next two years. As mentioned,
and increasing capital expenditures (Graph 5.b.). the re-election of President-elect Trump in the
Inflation peaked at 5.1% in the middle of 2024 due US is expected to bring significant changes to
to rising food prices and the impact of El Niño, which the geopolitical landscape and global economy
is expected to fall to 4.4% at the end of 2024 and moving forwards. The impact has been seen in the
4.1% in 2025 given the response of the Reserve increased global financial market uncertainty in
Bank of India (RBI) to hike its policy rate to 6.5%. the fourth quarter of 2024 after improving in the
In response to low inflation, however, the RBI is previous period. The US dollar experienced sharp,
expected to lower its monetary policy rate in the broad-based appreciation, accompanied by higher
future. US Treasury yields across all maturities as well
as increasing sovereign risk premia in EMEs. The
Similarly,economicperformanceintheASEAN-5 convergence of monetary policy rate cuts, including
region(Indonesia,Singapore,Malaysia,Thailand,and the FFR, which previously bolstered global financial
thePhilippines)pointstohighergrowth. Economic market stability in the third quarter of 2024, could
growth in ASEAN-5 is projected to accelerate from shift direction in the future. Further reductions to
4.0% in 2023 to 4.8% in 2024 and 2025. Inflation the FFR and monetary policy rates by other central
also decreases from 3.5% in 2023 to 2.3% in 2024 banks are expected to be smaller. Volatile global
and 2025. Overall, such developments indicate solid financial market dynamics since the US Presidential
economic resilience in ASEAN-5 against the impact Election could also trigger a portfolio rebalancing
of global spillovers, and achieving economic growth. among global investors toward US in pursuit of
In particular, the results of the U.S. Presidential high US Treasury yields and the strong US dollar.
Election need to be closely examined for its impact Consequently, the high fluctuation of portfolio
on the trade relations between ASEAN countries and inflows to EMEs throughout 2024, affecting bonds
the U.S. going forward, especially for Vietnam, which and shares (Graph 6.a.), is expected to intensify
has a large trade surplus with the U.S. in the coming period, alongside the growing risk
of a sudden capital reversal. Furthermore, sharp
Volatileglobaleconomicdynamicsandhigh US dollar appreciation since the US Presidential
uncertainty have forced EMEs to strengthen Election spurred widespread depreciation among
Graph.5.a.DomesticDemandofIndia Graph.5.b.FiscalConsolidationofIndia
Index % GDP
70
9.6
10
9.1
9
65
8
60
7
5.6
6
55
4.9
5
50
3.6 3.6
3.4
4
3.2
45 3
1.5
2 1.3
40
1
Manufacturing Services
35 0
2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10
Total Receipt Fiscal Deficit Interest Subsidies Capital
Payment
2021 2022 2023 2024 2021 2022 2023 2024
Manufacturing New Orders Services New Export
PMI Index PMI Orders Index
Fiscal Year 2024-2025 Fiscal Year 2024-2026
Output New Export New Orders Future Activity
Index Orders Index Index Index
Source: IHS Markit Source: Reserve Bank of India
several currencies in advanced economies and high tariffs imposed by the US along with
EMEs in the fourth quarter of 2024 (Graph 6.b.). inwardlooking trade policies in other countries.
Global spillovers have compelled many EMEs to Overthenextfiveyears,theglobaleconomyis
prioritizethemixofnationaleconomicpolicies expectedtobecharacterizedbyhighdynamicsand
on stability, which limits the policy space for challenges. There are at least 5 (five) challenges that
driving growth. First, central banks must reassess demand vigilance as follows:
the plans to lower interest rates in order to boost
growth, and instead, must focus monetary policy on i. First, high geopolitical risk and ongoing world
maintaining exchange rate stability and preventing trade fragmentation. General elections in
another build-up inflationary pressures, which more than 50 countries in 2024 have altered
have been painstakingly managed thus far. Second, political preferences and the economic policies
the space available for fiscal policy to stimulate of incoming administrations. In the US, the
economic growth is more limited given the need to incoming Administration is expected to cut
manage deficits for fiscal consolidation and reduce corporate tax and personal income tax, which
the risk of larger debt financing caused by high implies a ballooning fiscal deficit and government
global interest rates, particularly higher US Treasury debt to stimulate the domestic economy. In
yields after the US Presidential Election. Third, the many countries, populism and expansionary
impact of global spillovers require authorities to fiscal policy are becoming more prevalent,
focus on maintaining financial system stability and thereby expanding fiscal deficits and government
resilience, thereby limiting the room available to debt. This tendency is increasing competition in
institute pro-growth policies. And fourth, EMEs terms of financing fiscal deficits and government
governments must become more proficient to debt, which is projected to edge up interest
boost domestic demand, including consumption rates globally, thus increasing portfolio flows
and investment, and accelerate structural reforms to advanced economies and the fiscal burden
to increase aggregate supply capacity for economic borne by EMEs. Meanwhile, inward-looking
growth. This is important, considering the space for trade policies will exacerbate the current
increasing exports may be constrained due to global increasingly fragmented world trade pattern.
economic moderation, together with increasing Specifically, the new US Administration has
trade fragmentation and the growing possibility of conveyed plans to impose high trade tariffs to all
Graph6.a.PortfolioFlowstoEMEs
Graph6.b.DepreciationofEMEsCurrencies
Post-USElectionResults
USD Million
%
40
-2.49
THB -2.87
-2.12
MYR -2.86
-1.70
30
-2.58
JPY
-1.10
NZD -2.39
0.61
-2.38
BRL
20
-0.77
AUD -2.30
-1.19
PHP -2.10
-2.72
10
-1.92
EUR
-1.14
-1.96
KRW
-1.36
SGD -1.61
0
-2.50
ZAR -1.43
-0.85
IDR -1.34
-1.68
-10
CNY -1.11
-0.67
TRY
-0.35
-0.37
-0.36
INR
-20
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9
-4.0 -3.0 -2.0 -1.0 0 1.0
2023 2024
Equities, EMEs exclude China Equities, Korea and Taiwan (Province of China)
Point to Point Nov'24 Vs Oct'24 Average Nov'24 Vs Oct'24
Local Currency Bonds, EMEs exclude China
Note: Data as of 19 Nov'24
Source: Reuters, Bloomberg
Source: IMF, Global Financial Stability Report, October 2024
countries maintaining a large trade surplus with rate stability, but also in terms of fiscal policy to
the US. Consequently, world trade and economic stimulate economic growth.
fragmentation is expected to worsen. Multilateral
trade will gradually be replaced by bilateral trade, iv. Fourth, persistent uncertainty and a shift in
with the growing risk of international trade wars. the pattern of global financial investment. As
Such inauspicious conditions could disrupt world mentioned previously, a rebalancing in the
trade distribution channels and global supply portfolio investment preferences of global
chains, which have been centered in China. investors toward the US due to high US
Treasury yields will complicate EMEs' capacity
ii. Second, a spatial rebalancing in the centers of to attract portfolio inflows and, therefore,
world economic growth. Economic growth in challenging EMEs' economic stability. The
the US is expected to rebound despite the risk ability to attract foreign direct investment (FDI)
of economic overheating due to high interest will also be affected. Investors will apply more
rates and government debt burden. Meanwhile, selective investment strategies due to high
economies in Europe and China face the risk of risk premia globally, thus favouring EMEs that
slowdown. Notwithstanding, economic growth in have been successful in terms of real sector
Indonesia, India, and several other EMEs, which transformation and maintaining macroeconomic
is supported by domestic demand, is projected to stability. An investment-friendly environment,
remain solid (Graph 7.a.). In addition to increasing government policy assurance, and investment
trade fragmentation and unresolved global project feasibility will become prerequisites for
geopolitical tensions, economic growth will also investment. Furthermore, political and economic
be determined by the issues associated with fragmentation will also necessitate a country's
an aging population along with strong calls in ability to establish bilateral trade and investment
advanced economies for an immediate transition cooperation with the US and other economic
toward the green economy. trade partners.
iii. Third, high interest rates and debt risk. v. Fifth, the rapid pace of cross-border digitalization
Overcoming the deleterious impact of the and increasing operational risk (cyber). Rapid
Covid-19 pandemic incurred massive fiscal digital technological advancement will continue
burdens and higher government debt in many to accelerate innovation, preferences, and
countries. The latest dynamics indicate that the efficiency of various digital economic and
the Presidential Election in the US and general financial transactions. In addition, digitalization
elections in various other countries, which have will continue to propagate globally with rapidity
heralded a shift toward inward-looking policies due to the persistent march of technology and
and populist politics, will increase fiscal deficits digital innovation. Various forms of international
and government debt moving forward. This trend and cross-border cooperation, particularly
will increase international competition to finance between central banks, will also accelerate digital
fiscal deficits and government debt in the global cross-border payment system transactions.
financial markets and, therefore, push up interest Consequently, digital-based service transactions,
rates globally. Consequently, portfolio inflows will including financial services, corporate services,
be attracted to advanced economies,