A More Realistic Reading
Yopie Hidayat (Contributor)
INDONESIA has to walk through a long and winding road to economic recovery. At the end of Q1-2021, economic growth is still negative, at minus 0.74 percent year-on-year. This contraction is deeper compared to the average estimate of economists surveyed by Bloomberg, which predicted negative 0.65 percent. On the positive side, there are signs of improvements. From quarter to quarter, since the Covid-19 pandemic began, the economic contractions have been less and less severe.
Economic growth statistics are obviously very important references. However, we must not forget that those statistics are merely records of what has passed. For the market, it is more important to read the future of the economic trend. In this regard, the most valuable reference is a realistic estimate that will hit close to the mark.
The Indonesian government will clearly attempt to maintain the optimism. Officials are convinced that the Indonesian economy will not only recover, but also take off and flying, so that the graph of economic recovery will form a V-shape starting from Q2-2021.
The Coordinating Minister for the Economy Airlangga Hartanto even gave an estimate that can be considered highly ambitious: at the end of Q2 2021, Indonesia’s economy will grow between 6.9 percent to 7.8 percent. If this optimistic estimate being realized, then Indonesia will experience its most rapid growth spurt since 2008.
There are indeed several factors that can boost growth. One of them is the rise of various commodity prices recently, pulled up by the rapid economic recovery in China and the United States. Higher prices mean higher export earnings for Indonesia. This is an important factor in calculating economic growth.
For the last 11 months, Indonesia has recorded a monthly trade surplus. This includes the first three months of 2021, each netting US$1.96 billion, US$1.99 billion and US$1.56 billion respectively. But from these monthly statistics, there is something that needs to be carefully examined. The trade surplus was falling in March. Is this fall in surplus due to the new wave of Covid-19, which broke out on March and slowed the flow of trade?
The tsunami of Covid-19 in India has widespread global effects. This Covid-19 fear also creates a difficult situation for Indonesia’s economy coming into Q2 2021. Learning from India’s experience, which was unable to prevent massive crowd gatherings in religious festivals and political campaigns, the Indonesian government has no other option than to put restrictions to people mobility once again. And the biggest impact of this lies on the prohibition of mudik, annual massive exodus of city dwellers to celebrate Idul Fitri festival back home.
The restriction of people mobility surely will slow down the economy. Consumer spending, one dominant component in our gross domestic product, also will go down. Without the restriction, Indonesia’s economy would be enjoying a massive seasonal boost of Ramadan and Idul Fitri. This time, that once-a-year boon that is relied upon as an economic booster will be diminished.
And there is another signal. Banking statistics have not shown a positive trend as yet. Throughout Q1 2021, banks loans kept seeing contractions. In March 2021, the contraction in banks loans was even worse compared to February 2021, minus 3.8 percent versus minus 2.9 percent. The loan disbursement in banking industry is a good leading indicator of economic activity. If credit growth is still in the negatives, it is difficult to expect that economic activity will move more quickly.
Weighing the various factors, market analysts have started recalculating. Market sentiments are generally still optimistic that Indonesia’s economy will be on its track to recovery. However, that growth trajectory will not be a kind of skyrocketing one. The uncertain impact of Covid-19 pandemic can still get in the way. The growth in each quarter might just be slower for the remainder of the year.