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Gloomy economic outlook as growth falls below 5%
Indonesia has gone into 2020 with a sluggish outlook on its economy as household spending, exports and investments are expected to further weaken due to global economic risks, including the new coronavirus, economists say
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Indonesia has gone into 2020 with a sluggish outlook on its economy as household spending, exports and investments are expected to further weaken due to global economic risks, including the new coronavirus, economists say.
Gross domestic product (GDP) grew 4.97 percent in annual terms in the fourth quarter of 2019, the weakest level in almost three years, Statistics Indonesia (BPS) announced on Wednesday. Throughout 2019, Indonesia’s economy grew 5.02 percent, its weakest rate since 2015.
Bank Central Asia (BCA) chief economist David Sumual said GDP could be adversely affected by escalating fears over the 2019 novel coronavirus (2019-nCoV), calling the government’s economic target of 5.3 percent unrealistic.
“Economic growth below 5 percent in 2020 should not be ruled out,” David told The Jakarta Post after the GDP announcement. “The coronavirus outbreak will lower foreign investment from China and also China’s demand for Indonesia’s commodities.”
China is Indonesia’s largest trading partner and second-largest foreign investor. Each percentage-point decline in China’s growth rate results in a 0.3 percentage-point drop in Indonesia’s, the World Bank said in last year’s presentation to President Joko “Jokowi” Widodo.
David said the new virus could also be seen as an opportunity for the country.
“The trade war between the United States and China has triggered the relocation of factories to Southeast Asia. This may continue this year.”
Meanwhile, Coordinating Economic Minister Airlangga Hartarto said the new coronavirus could put pressure on Indonesia’s economic growth, citing analysts’ projections.
“China is subject to a downward revision of economic growth by 1 to 2 percentage points […] This number will affect Indonesia’s economic growth by 0.1 to 0.3 percentage points,” he said at the Mandiri Investment Forum in Jakarta on Wednesday.
The 2019-nCoV outbreak has killed nearly 500 people and infected more than 24,000 others, mostly in China. Travel bans, factories closing and white-collar workers told to work from home or take leave in China all point to a potential drop in China’s economic growth as cities impose restrictions.
Financial analysis company Fitch Solutions estimated that Indonesia’s GDP could lose up to 0.5 of a percentage point as a result of the outbreak.
Fitch also noted that many countries in Southeast Asia were more susceptible to the virus’ spread because of a weak healthcare system.
“Many countries could be vulnerable to disruptive work stoppages and a loss of productivity as many of them are ill-equipped to address the spread of the virus domestically,” Fitch warned.
Indonesia’s economy was buffeted last year by the US-China trade dispute, which had caused a cooling global economy, said BPS head Suhariyanto, but the country’s growth was buoyed by relatively strong household spending throughout 2019.
“It was not easy to stay at the 5 percent level, but the growth was still good enough amid the global economic slowdown,” BPS head Suhariyanto told reporters during a press briefing in Jakarta.
Household spending, which accounts for more than half of GDP, grew by 5.04 percent last year — stagnant compared to 5.05 percent in the previous year because of declining vehicle sales.
Investment, the second-largest contributor to Indonesia’s economy, expanded 4.45 percent last year, a far cry from the 6.67 percent growth recorded in 2018. Government spending grew 3.25 percent from 4.8 percent in 2018, while exports and imports contracted 0.87 percent and 7.69 percent, respectively, last year.
“Growth is uninspiring because all indicators stagnated or declined,” Samuel Aset Manajemen economist Lana Soelistianingsih told the Post, giving a 2020 growth forecast of below 5 percent.
Lana said the government would need to provide incentives to fuel household spending, such as by boosting its social spending and increasing the threshold for non-taxable income.
“This will allow for greater purchasing power to boost consumption growth.”
She added that Bank Indonesia (BI) would need to cut its benchmark interest rate this year to fuel economic expansion. The central bank has lowered its key rate four times since the second half of last year to 5 percent and left it unchanged last month.
BI Governor Perry Warjiyo said on Wednesday that easing would not be limited to lowering the benchmark rate, reiterating that the central bank would maintain an accommodative stance this year.
