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Indonesia alert to economic risks of coronavirus
Cover your mouth: People wearing protective masks to help stop the spread of a deadly virus that began in Wuhan shop for groceries at a supermarket in Beijing on Tuesday
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over your mouth: People wearing protective masks to help stop the spread of a deadly virus that began in Wuhan shop for groceries at a supermarket in Beijing on Tuesday. A viral outbreak that has killed 132 people in China could reach its peak in around 10 days, a top Chinese government expert said on Tuesday. (AFP/Nicolas Asfouri)
The government believes the spreading coronavirus in China will add to downside risks and uncertainties in the domestic economy as Indonesia’s largest trading partner braces for a blow to its economic growth.
Chinese New Year, which took place in January, should have given momentum to China’s economy, Finance Minister Sri Mulyani Indrawati has told lawmakers. “The outbreak has resulted in the country failing to realize its economic potential."
Each percentage-point decline in China’s growth rate results in a 0.3 percent drop in Indonesia’s, the World Bank has said. China’s economic growth hit a 29-year low in 2019 at 6.1 percent while Indonesia’s latest data showed 5.02 percent annual economic growth in the third quarter of last year, the slowest in more than two years.
"For now, the biggest battle is to keep investors’ trust in the country's economy amid uncertainties and lower confidence,” Sri Mulyani said. "We must first prepare policy instruments to mitigate the risks and maintain economic stability."
The Jakarta Composite Index, the benchmark stock price gauge on the Indonesia Stock Exchange, dropped three consecutive trading days from Friday to Tuesday as world shares and oil prices dropped over concerns about the coronavirus’ impact on the global economy. Safe haven assets like the Japanese yen and gold rose.
As of Tuesday morning, the 2019 novel coronavirus (2019-nCoV) has killed about 132 people in mainland China and has infected more than 6,000 worldwide since it was first identified in Wuhan on Dec. 31, 2019.
Confirmed cases have been reported in Malaysia, Singapore, Thailand, Vietnam, Hong Kong, Macau, Taiwan, Japan, Nepal, South Korea, Australia, France and the United States, according to the US Center for Disease Control and Prevention.
Apart from the coronavirus, global manufacturing disruption and geopolitical tensions have also become sources of global economic uncertainty, said Coordinating Economic Minister Airlangga Hartarto.
“The challenges to the global situation will continue in 2020 despite easing trade tensions,” Airlangga added.
Despite downside risks, Airlangga said that all countries expressed their optimism about economic development in 2020 during the World Economic Forum Meeting in Davos, Switzerland, which took place from Jan. 21 to 24.
The meeting took place following the phase-one trade deal between the US and China, which is expected to ease trade tensions between the world’s two largest economies.
The International Monetary Fund projected global growth would pick up to 3.3 percent in 2020 and 3.4 percent in 2021 from 2.9 percent last year.
Center of Reform on Economics (CORE) Indonesia research director Piter Abdullah said the virus would continue to take a toll on the country's economy as it could lower global demand for Indonesian products and put more pressure on commodity prices.
"Lowering commodity prices will worsen the country's exports and thus will widen the trade deficit," Piter told The Jakarta Post, adding that it would also affect household spending. “Consumption will struggle to grow and thus could result in lower economic growth.”
Trade Minister Agus Suparmanto said previously that the coronavirus outbreak would not influence Indonesia's trade with China or other affected countries.
Indonesia exported $25.8 billion worth of non-oil and gas products to China in 2019, an increase of 5.9 percent from the previous year, representing 17 percent of total exports.
The Trade Ministry is coordinating with the Health Ministry on whether to impose import restrictions on goods from China to prevent the spread of the coronavirus, responsible for a rising death toll in China.
Agriculture Minister Syahrul Yasin Limpo said his ministry had strengthened oversight at points of import by tightening checks.
“Every product that comes in, be it food, fruit or anything else, for the time being imports of those products can be limited. Therefore, excessive fears are not necessary, although tighter biosecurity measures must be imposed at our entrance gates,” Syahrul said in Jakarta on Monday.
Indonesia imported US$44.5 billion of non-oil and gas products from China throughout 2019, representing almost 30 percent of all such imports into Indonesia.
According to Statistics Indonesia (BPS), fruit imports from China more than doubled to $134.42 million in November 2019 alone from $64.17 million in the same period last year.
“It is premature to be pessimistic for now as actions taken by individuals and on the state level can end up being more costly than is justified,” World Bank East Asia Pacific chief economist Aaditya Mattoo told the Post, referring to potential preventive actions such as trade restriction, canceling contracts and sanctions.
“Wuhan is a location for a lot of internationally integrated industries so even local health crises can have repercussions,” he said.
McDonald’s and Yum China Holdings, which operates Pizza Hut and KFC in China, have announced restaurant closures in areas near the center of the outbreak while Starbucks has closed more than half of its mainland China locations.
Toyota Motor Corp.’s production plants in China will stay closed through to Feb. 9 while airlines cut or suspend flights to China.
