Nearly half way into the first quarter, we now believe that the global economic outlook for the first semester will be worse than previously expected, particularly as the Obama stimulus has not even taken shape.

Tardiness in the US stimulus package will adversely impact the rest of the global economies. Thus, we are expecting deeper contractions to occur worldwide with the third quarter of the year likely to remain depressed.

The IMF has recently cut its global economic growth estimate to 0.5 percent from 2.2 percent back in December 2008.

Lower exports coupled with expected weak investment have us cutting Indonesia's forecast 2009 GDP growth to 4.1 percent from 4.8 percent previously.

Our economist has lowered his export assumptions from a 2.2 percent year-on-year contraction to one of 9.3 percent.

We believe this is conservative given that December 2008 exports had contracted 16.4 percent year-on-year. However, it is worthwhile noting that we also expect 2009 imports to fall 11.7 percent year-on-year from 4.4 percent previously.

This should help to alleviate the adverse impact of falling exports. If imports can be curbed and result in greater decline relative to exports, then Indonesia could experience improvement in its trade balance and current account.

Furthermore, a sharper drop in imports than exports would not only contribute positive growth towards GDP but would also strengthen the Indonesian rupiah.

That said, the government must go all out to prevent illegal imports in order to support the rupiah and at the same time, Indonesia's economic growth.

Therefore, to safeguard the domestic economy, it is imperative that the government properly implements its plan to set up an inter-ministerial team to monitor the flow of goods into the country.

Based on our channel checks, the difficulty in importing illegal goods into Indonesia is far from being permanent.

Rather it is on and off, depending whether the ports are being "inspected" or not.

Old port authorities, in cahoots with illegal importers, would signal when it would be safe to bring non-authorized goods into the country.

This must be prevented through heavy sanctions in our view. On the stock market, we stand by our view that it is still too early to be getting back into the global cyclicals as the global recession has deepened.

We now expect a more prolonged downturn with any growth trend for global economies unlikely to emerge before 2010.

Having said that, we believe commodity plays will continue to book poor earnings and results throughout 2009.

Even for coal plays, which are relatively defensive compared to other commodities, we believe downside on volumes will exist in 2009-2010.

Under the best scenario, only in 2010 do we expect signs of positive earnings momentum to emerge out of the dollar earners, including coal.

Investors will be relatively better off in domestic plays such as banks, toll roads/infrastructure, consumer, cement and property due to falling interest rates, helped by continued depressed commodity prices.

With 2009 being an election year, the main risk to our call would be the depreciation of the rupiah, which has depreciated 6.7 percent year-to-date. Since August 2008, the rupiah has weakened 21.6 percent.

However, the falls in commodity prices have outpaced the drop in the currency.

This will eventually translates into margin expansion for Indonesian manufacturers in the second quarter of the year and beyond.

Go domestic!

The writer is the senior vice president and head of research of Bahana Securitas.

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