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Despite heightened global uncertainty, Indonesia’s economic outlook continues to be positive. Stronger private and government consumption lifted real GDP growth to 5.3 percent in the second quarter, according to the World Bank’s September 2018 Indonesia Economic Quarterly released. Supported by robust investment,

stable inflation, and a strong job market, Indonesia’s economic growth is forecast to reach 5.2 percent this year and in 2019, then gradually strengthen to 5.3 percent in 2020. Risks to this outlook include the ongoing U.S. monetary policy normalization, and contagion from volatility associated with other emerging markets.

“The government of Indonesia’s commitment to stability, along with decisive, coordinated policy actions, and strong macroeconomic fundamentals have all enhanced Indonesia’s resilience amid heightened global uncertainty,” saidRodrigo A. Chaves, World Bank Country Director for Indonesia and Timor-Leste.

Thanks to a solid economic performance for years, Indonesia reduced the poverty rate from 19.1 percent in 2000 to 9.8 percent in 2018. Better economic opportunities, particularly in urban areas, have helped many Indonesians escape poverty and join the middle class. With now over half of the country’s population living in urban areas, this edition of the Indonesia Economic Quarterly also discusses the challenges and opportunities Indonesia faces in leveraging urbanization to bring greater prosperity and inclusion.

“Urbanization can be a powerful force for economic growth and poverty reduction, but if poorly managed, the congestion costs can crowd out its benefits,” saidFrederico Gil Sander, Lead Economist for the World Bank in Indonesia.To reap the potential of urbanization, national and local governments need to work together on policy and institutional reforms.”

Among the report’s policy recommendations is the need to achieve three ‘Cs’: (i) converge and expand the delivery of basic services to ensure that all Indonesians can enjoy good quality education, health, water and sanitation services; (ii) connect and integrate within and between places so that all can access economic opportunities; and (iii) customize policies to target groups or regions that may be left behind.

The launch of the September 2018 Indonesia Economic Quarterly is part ofVoyage to Indonesia, a series of activities leading up to the 2018 Annual Meetings of the International Monetary Fund and the World Bank Group in Bali on October 12 to 14, 2018. The Australian Department of Foreign Affairs and Trade supports the publication of this report.