The bank estimated that if the growth rates of China and the US fell by 1 percent, it would trim 0.3 percent off the growth of the Indonesian economy.
According to Statistics Indonesia (BPS), Indonesia’s economy – the largest in Southeast Asia – expanded by 5.05 percent in the second quarter of this year, softening from 5.27 percent recorded over the same period last year.
The government expects the economy to grow 5.3 percent this year as stated in the 2019 state budget.
The World Bank explained that the bleak outlook for Indonesia was driven by the country’s weak productivity and slowing workforce growth.
Lower commodity prices due to the global economic slowdown would also further hurt Indonesia’s economy, the bank said.
With downside risks increasing, Indonesia could be susceptible to another episode of capital outflows, which would weaken the domestic currency, the rupiah, and increase the public debt burden.
The World Bank advised the Indonesian government to redirect its efforts to improve the investment climate to attract more foreign direct investment (FDI).