Indonesia could soon surpass Germany and the United Kingdom to become the world's seventh largest economy, generating $1.8 trillion in annual gross domestic product, according to a recent report by McKinsey and Co.
Indonesia, a secular state, has the world's fourth largest population and the world's 16th largest economy. In terms of production, 55 percent of its population produces almost three-quarters of the country's $837 billion economy.
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According to the authors of the McKinsey report, Indonesia has sustained GDP growth over 5 percent per year, but in order to overtake developed economies such as Germany and the United Kingdom, it would have to grow at 6 percent annually until 2030.
As the largest economy in Southeast Asia, by virtue of GDP, Indonesia managed a stronger-than-expected 6.4 percent growth in the previous quarter - defying the global economic slowdown, in part because of its strong domestic consumption base as well as its expanding middle class and inflow of capital.
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Nor is Indonesia, as many assume, a typical Asian manufacturing exporter driven by its growing workforce or commodity export driven by its rich endowments or natural resources. The reality is that, to a large extent, it is domestic consumption rather than exports, and services rather than manufacturing or resources, which are propelling growth.
Indonesia's young population and quick urbanisation, as well as growing middle class incomes have contributed significantly to the country's economic revival. By 2030, Indonesia is expected to be home to an estimated 90 million additional consumers with considerable spending power.
The report adds:
This growth in Indonesia's consuming class is stronger than in any economy of the world apart from China and India, a signal to international businesses and investors of considerable new opportunities.
However, to meet its economic potential, Indonesia would have to overcome the chronic protectionism, over-regulation and poor transport infrastructure that often frustrate and hold back economic growth, it said.
At the same time, critics cite corruption as another major impediment to growth.
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