Industries |

Economic Recovery Update from Bank Indonesia

Industries | 17 July 2020

The Indonesian Central Bank issued its June update on the 25th June tracking the state of the nation’s economy in the midst of the Covid pandemic. Their key action was to lower the BI 7 – Day Reverse Repro Rate to 4,25% to increase financial stimulus, maintain financial stability and nurture economic recovery. BI still perceives space to lower interest rates in line with what are felt to be mild inflationary pressures.

Here are their main points:

The Global Economy has still continued to contract although financial market uncertainty has eased in line the with a flattening of the Covid 19 curve. While restrictions on economic activity to contain Covid – 19 risk lowering global economic growth in 2020 beyond initial projections, world trade volume and international commodity prices have not contracted as deeply as previously expected and economic activity in some countries is beginning to pick up in line with policy response and unwinding of lockdown measures as Covid-19 curves flatten.

The Domestic Economy is still expected to decline in the second quarter of 2020 although the latest developments indicate milder pressures. Exports are certainly shrinking on global economic contraction while household consumption and investment are both decreasing due to large scale social restrictions that have curbed economic activity. BI expects the economic recovery process to gain momentum in the third quarter after the government relaxes large scale social restrictions ( PSBB ) in the month of June on gradual basis, and this will be aided by policy stimuli already implemented.

The Balance of Payments has remained resilient in the second quarter of 2020 with only a narrow current account deficit projected, consistent with balance improvements, and showing a US$ 2.09 bn surplus in May. Foreign capital inflows have been maintained in line with less capital market uncertainty, some attractive domestic financial assets on offer and a resilient economic outlook. Foreign exchange reserves at and may were US$ 130,5bn equivalent to 8,3 months of imports.

The Exchange Rate has improved with the rupiah gaining strength as foreign capital continues to flow into domestic financial markets.

The Consumer Price Index inflation remains low supporting economic stability being only 2,19% (year on year).

Overall the outlook remains poor for 2020 with economic growth between 0,9 – 1,9% but insist to 5,0% – 6,0% in 2021. The Current Account deficit is expected to rise to 3.0% of GDI in 2021. With inflation at between 3 – 4 % but risks remain until the Covid-19 crisis is finally finished.