The Jakarta Post
Major Indonesian fund manager Batavia Prosperindo Aset Manajemen (BPAM) has projected a U-shape economic recovery will take place over the course of a year as it expects Bank Indonesia to continue easing its measures amid volatility that is likely to continue in the financial market.
Lilis Setiadi, president director of BPAM, which manages almost Rp 45 trillion (US$3.18 billion) worth of funds, said the discovery of a vaccine would be the prerequisite for recovery to reach pre-pandemic levels, despite the reopening of economies worldwide.
“What we’re seeing, in terms of forecast, global recovery to a pre-COVID-19 level will take place in the first quarter of 2021. This is assuming that we are not seeing a second wave in the majority of countries that have been impacted by COVID-19," Lilis said during The Jakarta Post’s Jakpost Up Close webinar series “Investing in stocks: Best strategies in volatile times”.
BPAM forecast the country's GDP growth to range from 0.5 percent to a 0.5 percent contraction, compared with the government’s projection of 2.3 percent growth this year, or a 0.4 percent contraction under a worst-case scenario.
“When this whole COVID-19 is resolved, we expect to see a U-shaped recovery in the domestic economy,” Lilis noted, adding: "We are not going to see a sharp recovery like a V-shape."
The Indonesian government has unveiled a Rp 677.2 trillion (US$47.89 billion) economic stimulus package to cushion the COVID-19 blow. The stimulus will widen the budget deficit to 6.34 percent while, historically, Indonesia has maintained a deficit cap of 3 percent.
“Many are asking whether this would be sufficient. A more important question is not whether or not it is going to be enough, but whether this amount of stimulus can be effectively deployed and the deployment can happen in a fast manner,” she said.
Aside from broadening the budget to fight the pandemic, Bank Indonesia cut its benchmark interest rate by 50 bps so far this year to 4.5 percent in an effort to further stabilize the economy. The market is under the consensus that there is still room for further cuts.
“Looking at how the rupiah is doing, we believe that the central bank will have room to cut more, probably twice this year, each at 25 basis points,” Lilis noted.
In a recent announcement, Finance Minister Sri Mulyani Indrawati said the economy was projected to shrink 3.1 percent in the second quarter this year, after only growing 2.97 percent in the first quarter, the slowest pace in 19 years.
Based on BPAM’s forecast, this year's third quarter GDP will experience a slight negative percentage, considering the low levels of activities following the easing of restrictions in the country.
In the fourth quarter, the firm is expecting to see a positive percentage as economic activities normalize to 70 to 80 percent of pre-COVID-19 levels.