Indonesia | A rebound of more than 4% expected in 2021

Political situation: In April 2019, President Joko Widodo was re-elected with 55.5% of the vote, giving him a second term until 2024. As in his first term, Widodo has continued to tackle economic reforms, such as improving infrastructure to support the manufacturing sector and the digital economy, labor market reforms and foreign investment rules. However, some key elements of his political agenda remain contested due to special interests. Compared to its neighbors, The Indonesian government has been slow to take comprehensive measures to contain the spread of the coronavirus, most likely due to concerns about the negative consequences for the economy. Indonesia has never imposed a large-scale lockdown, but looser restrictions on social activities have been implemented in the archipelago throughout last year and into early 2021. The country has experienced one of Southeast Asia’s highest coronavirus case rates, and the vaccination program started there in January. Officially, it aims to reach 181.5 million people within a year, which seems very ambitious.

A slight recession in 2020, followed by an expected rebound of more than 4% in 2021

In 2020, Indonesia’s GDP shrank by 2.1%, a rather small contraction compared to many other countries. This is in part due to the fact that the economy is rather closed (exports only account for around 20% of GDP, making Indonesia less susceptible to global trade slowdowns than some other South Asian countries. East). Imports (down 14%) fell much more sharply than exports (down 6%), while economic performance was also supported by higher public consumption. In 2021, the economy is expected to rebound by 4.7%, conditional on the gradual relaxation of mobility restrictions and effective deployment of the vaccine. While the recent spike in coronavirus cases and the reinstatement of restrictions negatively impacted the recovery in early 2021, prioritizing the vaccination of working-age people could accelerate the rebound in economic activity during the year.

Private consumption and real fixed investment, both of which were the main drivers of growth in the years leading up to the pandemic, are expected to increase by 3.3% and 5.3% respectively, while exports are expected to rebound by 8%. , 2%.

Some sectors have proven to be resilient

When it comes to sector performance, agriculture is one of the most resilient sectors amid the coronavirus pandemic in Indonesia, with production and exports rising in 2020. Chemical and ICT industries are growing. are also found to be quite robust. Demand for ICT products has rebounded since the second half of 2020, with an increase in projects to supply hardware and other IT infrastructure. Wholesalers and suppliers of ICT for projects were able to maintain the level of income and margins recorded in 2019. The construction sector experienced delays and postponements of projects due to social restrictions, but the rebound observed towards the end 2020 is expected to accelerate in 2021. in all segments (public, residential and commercial construction). Energy and mining industries were affected by a sharp 27% drop in investment, down to $ 24.4 billion, as the coronavirus outbreak resulted in many projects being canceled. For the automotive industry, market potential remains strong in Indonesia. However, an overall recovery from the drop in sales in 2020 depends on the rebound in other industries and the increase in household purchasing power. The latter also plays a pivotal role in the rebound in the distribution of durable consumer goods. In the service sector, thousands of hotels and restaurants have been forced to close, while a number of airlines and tour operators have suffered significant losses. In the second half of 2020, payment delays and defaults increased in the tourism-related service segments. The outlook for 2021 depends largely on the evolution of the pandemic situation in the country and the deployment of vaccination.

Fiscal and monetary measures to support the economy The Central Bank has lowered its key rate six times since the start of the pandemic, to 3.5% in February 2021. Last year, he lowered the reserve requirement ratio of banks to give more room to the banking sector to support local businesses. There is still room for additional monetary measures to support the economic recovery, also due to the fact that inflation is expected to stay at 2%. The government removed the constitutional budget deficit ceiling of 3% of GDP for the period 2020-2022 and allocated stimulus measures amounting to $ 49.5 billion (4% of GDP) in 2020. In early 2021, the government announced additional budget support of $ 43 billion. Key measures to support the economy have so far included increased health spending, social protection measures, corporate tax cuts, credit restructuring, special loans to SMEs, social grants. cash to the poor and workers in the informal sector (approximately 70 million out of the 270 million inhabitants work in the informal sector) and the expansion of public sector projects. These significant expenditures will lead to a new high budget deficit of more than 6% of GDP in 2021 (6.2% of GDP in 2020), with a further increase in public debt, to 47% of GDP (40% of GDP in 2020). 2020 and 35% of GDP). GDP in 2019). At this rate, public finances remain manageable, also because annual budget deficits before the pandemic were low. However, persistent weakness in tax collection, subsidies and inefficiencies in state budget disbursements remain problems.

Structural vulnerability to external shocks remains

The capital adequacy ratio (22.8%) and the NPL ratio (2.8%) suggest that the banking sector is strong. However, the negative and declining net foreign assets of the sector indicate a major weakness. Another weak point concerns the fairly high share of foreign currency loans and deposits among banks (around one seventh of their exposure). In addition, banking supervision is still not fully compliant with international standards. The level of external debt in terms of GDP seems manageable (33% -36% of GDP between 2015 and 2019), but it appears more worrying as a percentage of exports of goods and services (between 159% and 189% over the same period). The level of external debt fell to 205% of exports of goods and services in 2020, mainly due to a further increase in external debt and a decline in exports. It is expected to remain high in 2021, at 195%. The rather weak external assets and the unfavorable structure of the creditors of the external debt (nearly 85% of private creditors) also add to the risk of external solvency. The debt service ratio remains high at over 25% in 2021, and the annual current account balance has remained consistently negative over the past two years (estimated at -0.8% in 2021). Indonesia remains structurally vulnerable to turbulence in global financial markets (for example, sudden exit from portfolio investments or sharp reduction in foreign capital available to private creditors). Foreign investors hold more than 30% of Indonesian government bonds, a larger share than its regional peers, which makes the country’s financial assets very sensitive to capital outflows. In addition, since foreign investors hold about a third of corporate debt financing, refinancing risks remain high.

Source link

About Charles Brown

Check Also

FEMA offers assistance for damage caused by winter bad weather in Calcasieu

LAKE CHARLES, Louisiana (KPLC) – Homeowners and tenants in Calcasieu who were affected by the …

Leave a Reply

Your email address will not be published. Required fields are marked *