- The United States economy in late 2024 showed signs of cautious optimism. Consumer confidence improved, reaching 111.7 in November, supported by labor market strength. Manufacturing stabilized, with PMI at 49.7, and inflation remained at 2.7% year-on-year. The Federal Reserve’s rate cut to 4.25%–4.5% balanced growth with inflation control, though it caused market fluctuations, including rising Treasury yields and declines in stock indices. Lower US interest rates may encourage capital flows to emerging markets, but global uncertainties and cautious monetary policy temper these effects.
- Europe experienced modest improvements, with the Economic Sentiment Indicator (ESI) slightly rising to 96.5 in November, though manufacturing remained weak with PMI at 45.2. Inflation increased to 2.3% but showed signs of disinflation of 2% in 2025. The ECB reduced rates by 25 basis points, signaling optimism for easing inflation. In China, manufacturing PMI rose to 51.5, driven by strong domestic and export demand, while inflation stayed low at 0.2%. China’s central bank kept lending rates stable to maintain currency and market stability amid global pressures.
- Indonesia’s economy remained robust, with a trade surplus of $4.42 billion in November 2024, driven by non-oil and gas exports to China, the US, and India. Inflation was controlled at 1.55% year-on-year in November 2024, while the Consumer Confidence Index reached 125.9, reflecting optimism across regions and income levels. Investment inflows were strong, reaching IDR 1,261.43 trillion by Q3 2024. Bank Indonesia kept interest rates at 6.00% to stabilize the rupiah, supported by $151.2 billion in foreign exchange reserves. While the government has planned VAT hike to 12% may bolster revenue, it risks reducing consumer spending. Based on preliminary finding of IFG Progress, using retail sales index as proxy of consumer spending, an increase in 1% VAT tend to decrease retail sales Index by 6,09%.
- Indonesia’s insurance sector faced mixed outcomes. The life insurance industry contracted by 0.4% year-on-year, with claims down 5.2% in Q3 2024. New regulations like POJK 23/2023 and IFRS 17 aim to improve resilience but may challenge smaller insurers. Health insurance saw medical inflation at 13.1% in 2024, above the Asia-Pacific average. General insurance premiums grew by 10%, though claims surged 28% in Q3 2024. New rules under POJK No. 20/2023 introduced risk-sharing and cost caps to stabilize the sector. Meanwhile, financial sector remains the healthiest in Indonesia (mainly due to banking sector), according to the IFG Progress Sectoral Healthiness Index (IPSHI).
- While slower domestic inflation may provide tailwinds for some of IFG subsidiaries due to its potential impact of strengthening Risk-Based Capital and Gearing Ratios, IFG ecosystem must be aware of worsening Rupiah exchange rate stability that may adversely impact insurance reserves (RBC / GR). Looking forward, Interest rate environment will become unpredictable in 2025, hence IFG ecosystem must embrace volatility both on the investment side as well as the underwriting side.
Toward Stronger Financial Industry in Indonesia