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Indonesia’s economic growth may dive to 4.5% in first quarter

Indonesia’s economic growth may drop to 4

Adrian Wail Akhlas (The Jakarta Post)
Jakarta
Fri, March 20, 2020

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Indonesia’s economic growth may dive to 4.5% in first quarter

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span>Indonesia’s economic growth may drop to 4.5- 4.9 percent in the first quarter, with potential to further plunge in the second quarter, amid weakening economic activities driven by the spread of the novel coronavirus, the finance minister says.

Finance Minister Sri Mulyani Indrawati said Wednesday that the economy had grown at a rate of 4.9 percent until the second week of March, a level unseen since 2016, further lowering from 4.97 percent in the fourth quarter. The last two weeks of March could further drag down GDP growth as people limit mobility and travel to slow the spread of COVID-19, she added.

“The COVID-19 impact on the economy is significant so we will not underestimate this situation,” Sri Mulyani told reporters via a video conference. “Meanwhile, growth in the second quarter will be pressured significantly by COVID-19.”

Sri Mulyani said the Finance Ministry would be careful in assessing the full-year economic growth projection, adding that the country must handle the situation well to have “reasonable hope” for the next quarter.

“If we can handle the situation by limiting the virus spread and making the public more disciplined then we could have reasonable hope in the second quarter,” Sri Mulyani warned.

Indonesia has announced 227 confirmed COVID-19 cases, with 19 deaths, as of Wednesday. Globally, the pneumonia-like illness has infected nearly 200,000 people and taken at least 7,900 lives, with more cases reported outside China, where the virus was believed to have originated.

The pandemic has triggered lockdowns in several countries, including China, Italy and Malaysia. It has halted business activity and disrupted the global supply chain, triggering concerns of slowing economic growth.

The Organization for Economic Cooperation and Development (OECD) has downgraded its global growth forecasts, estimating that global GDP will stand at 2.4 percent this year, a 0.5 percentage point cut from an earlier forecast in November.

The OECD expects Indonesia’s economy to grow 4.8 percent in 2020, a 0.2 percentage point cut from its initial projection in November. The country’s GDP grew 5.02 percent in 2019, the lowest level in four years, as exports and investment cooled.

Earlier this month, Bank Indonesia (BI) predicted that weakening economic activities, especially involving tourism, exports and imports, would drag down the country’s economic growth to 4.9 percent in the first quarter before picking up again in the following months.

BI Governor Perry Warjiyo said the coronavirus had hurt export-import businesses and tourism-related industries in February, adding that he expected the trend would likely continue, but finally bottom out in March.

The same trend was also seen in the financial market with foreign investors selling a net Rp 30.8 trillion (US$2.17 billion) through February until Feb. 27, of which Rp 26.2 trillion was in government bonds and Rp 4.1 trillion in stocks, said Perry.

“Recovery is likely to take place in the next six months after bottoming out in February and March,” Perry said as he briefed media leaders at the central bank’s headquarters in Jakarta.

“Our economic growth in the first quarter is likely to drop to 4.9 percent according to our assessment. That’s not a doomsday scenario but based on the V-shape scenario that we project.”

The central bank governor mentioned that the growth projection would be made possible if there was a “very strong and coordinated effort” to support the economy.

“Stimulus needs to be done by the government; BI is doing its part and also the OJK [Financial Services Authority],” he said.

The government has launched a Rp 10 trillion fiscal stimulus package to support the tourism industry and boost consumer spending to counter the economic impacts of the coronavirus outbreak. BI has also launched five measures to stabilize the rupiah, including buying government bonds in the secondary market and cutting the dollar reserve ratio of banks to free up billions of dollars to support the rupiah.

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