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Indonesia faces increasing downside risks to its growth as Covid-19 wave worsens: reports

Sharon See
Published Thu, Jul 15, 2021 · 11:26 PM

INDONESIA is facing increasing downside risks to its growth and export momentum in the third quarter due to the worsening Covid-19 pandemic, which analysts say is in its worst wave yet.

"We lower our economic forecast for 2021 to 3.4 per cent from 4.4 per cent earlier, while 2022 growth will be higher on base effects at 5.6 per cent from 5.2 per cent earlier," said Vishrut Rana, an Asia-Pacific economist at S&P Global Ratings.

The independent credit ratings provider said a delayed economic recovery will drag on revenue for banks, most corporate sectors and the government budget, creating downside pressures for the economy and its credit conditions.

Maybank Kim Eng economists said downside risks for Indonesia's third-quarter growth are rising as Covid-19 cases jump to unprecedented highs, breaching 40,000 cases daily since July 12.

Meanwhile, it is expecting Q2 growth to come in at 7 per cent, with domestic demand rebounding from the low base a year ago when mobility restrictions were at their tightest.

Goods exports are likely to be a key driver of Q2 growth as the reopening of major economies have boosted demand for commodities and manufactures, said the Maybank team.

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Exports in June sustained its double-digit momentum at 54.5 per cent, although this was slightly below May's 62 per cent, according to data released on Thursday. Imports surged 60.1 per cent, moderating from May's 68.7 per cent.

These numbers continued to benefit from a low base effect in June, said Sung-Eun Jung, an economist at Oxford Economics.

"Beyond Q2, we expect a temporary setback in export recovery as the government imposes prolonged lockdowns, which will hamper production," said Ms Jung.

She added that restrictions will likely remain in place throughout Q3 to curb the coronavirus spread given the slow progress in vaccination.

Under the current measures, export-oriented industries can operate only up to 50 per cent capacity at work premises, she noted.

"In addition, we think China's domestic weakness could impinge on Indonesia's export outlook," she said.

Indonesia's trade surplus narrowed below market expectations to a one-year low of US$1.3 billion in June, down from US$2.7 billion the previous month.

Citi Indonesia chief economist Helmi Arman said he is not too concerned about the lower-than-expected trade balance, saying it is "probably a glitch".

"Underlying export trends still appear robust, while the recovery of imports will be possibly tempered in the near term in light of the renewed mobility restrictions," said Mr Arman.

Separately, OCBC economist Wellian Wiranto said Indonesia may experience further sequential upticks in daily cases for about two more weeks, before a potential peak emerges around end-July. This is based on comparisons with India's peak, he added.

From the time India saw more than 50 new cases per million people at the start of April, it took 36 days before cases peaked at 283.5 per million on May 8, he said.

So far, the growth in daily counts in Indonesia has stayed below India's trajectory, he noted.

"But if we were to blindly apply India's population-adjusted run rate, it suggests that Indonesia may see more than 70,000 daily cases at its peak - a number that has been floated by the government as well," Mr Wiranto said.

This means there is a risk the country's restriction measures may extend beyond July 20, he said, adding that this poses further downside risks to his 4.1 per cent growth forecast for 2021.


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