EVEN as Jakarta scales back Covid-19 restrictions, economists have moderated their growth expectations. In an Oct 11 note, Citi economist Helmi Arman noted that the psychological impact of rising infections may have hurt consumer behaviour in early October, with the Google mobility index showing a pullback in visits to retail and recreation sites, back to the lows of June 2020.
"Going forward, we remain of the view that economic activity could still see oscillations in coming quarters along with the rise and fall of the infections curve. This will dampen private capex and also push back the return of GDP to pre-Covid levels," he said.
Citi has lowered its gross domestic product (GDP) expectation for 2021 to around 4 per cent, down from the previous 5.6 per cent, while highlighting that risks to the fiscal deficit forecast remain on the upside.
DBS economist Radhika Rao sees the baton of policy support passing from monetary to fiscal policy. On Oct 13, Bank Indonesia extended its pause on interest rates, which has been in place since August.
On the fiscal front, total expenditure jumped 86 per cent year on year in August, concentrated in personnel spending, social assistance, regional transfers or village funds, and subsidy payouts.
"Year-to-date, expenditure has reached the 56 per cent mark of budgeted quantum by August, with the fiscal deficit also nearly at the half-way mark by August," she noted. "Spending is typically backloaded, which implies an acceleration in disbursements can be expected in the remaining four months of the year."
An omnibus bill passed the previous week also aims to make the business environment more competitive and attract foreign direct investment. But its labour reforms have precipitated protests and unrest, "hurting domestic financial markets at the margin", noted Ms Rao.
DBS's inhouse model points to a contraction in the third quarter, before improving to a smaller fall towards the end of the year. With the pandemic curve only gradually being addressed, along with a uneven response on social restrictions and below-budgeted fiscal disbursements, DBS has lowered its growth expectations for 2020 to -2 per cent, down from -1 per cent previously.
Indonesia's finance ministry, for its part, has lowered its official projection to between -1.7 per cent and -0.6 per cent, compared to the previous range of -1.1 per cent to 0.2 per cent.