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Economic Recovery Momentum

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DEPOK (eNBe Indonesia) – The central bank (Bank Indonesia/B.I.) on Thursday (Dec 17) decided to hold the BI 7-Day Reverse Repo Rate at 3.75%, consistent with projected low inflation and maintained external stability, coupled with efforts to support the economic recovery.

B.I. explained it will continue to direct all policy instruments towards supporting the national economic recovery, while controlling inflation as well as maintaining rupiah exchange rate stability and financial system stability.

Meanwhile global economic improvements, according to B.I., have endured and are projected to accelerate in 2021. The global economic gains come amidst increasing mobility and the impact of ongoing policy stimuli in various countries, particularly the United States and China.

Several early indicators in November 2020 pointed to ongoing global economic improvements. The upward Manufacturing and Services PMI trends have persisted in the United States and China, consumer and business confidence are growing in the United States, China and Europe, and unemployment has fallen in many jurisdictions.

Consequently, B.I. said, the global economy is projected to grow at approximately 5.0% in 2021 after contracting 3.8% in 2020. Moving forward, the speed of the global economic recovery will be affected by the Covid-19 vaccine rollout, increasing mobility as well as ongoing fiscal and monetary stimuli.

At home, B.I. said, domestic economic growth is expected to gradually gain momentum and accelerate in 2021. This was confirmed by several positive indicators in November 2020, including increasing public mobility in several regions, ongoing improvements in the Manufacturing PMI as well as stronger consumer confidence and expectations concerning incomes, job availability and business activity.

The vaccinations and discipline in terms of implementing Covid-19 protocols are prerequisites for the national economic recovery process. B.I. expects national economic growth to regain positive momentum in the fourth quarter (Q4) of 2020, and recording -1% to -2% in 2020 before accelerating to 4.8-5.8% in 2021.

Finance Ministry Sri Mulyani Indrawati said the economic recovery in Q4 this year improved inline with the growing mobility of people or citizens. The production side grows as reflected from PMI manufacture that returns to expansive level in November 2020.

However, the minister said, the momentum of recovery is still needed to maintain alongwith the growing cases of COVID-19 in some countries, such as countries in Europe region. For Indonesia, Sri Mulyani said, government makes supporting efforts to health sector, economic, through budget and spending (APBN) instrument, including preparing budget (around Rp167 trillion) for handling the COVID-19 pandemic in 2021, excluding budget for vaccine.

For 2021, government projects the economy to grow by 4.5-5%, depending on how and what kind of efforts in handling, preventing COVID-19 pandemic through implementation of health dicipline and vaccine program. Government will next year focus on handling COVID-19 pandemic and accelerate the economic growth.

Recently Asian Development Bank (ADB) projected Indonesian economy to contract by 2.2% in Q4 of 2020. The momentum for growth has not emerged as election with tight health protocol, also limited campaign, did not provide spillover effect to public’s consumption segment.

While the World Bank revises down Indonesian GDP from contraction 1.6% to minus 2.2% in this year, due to persistent mobility restrictions and social distancing amid rising COVID-19 cases. However, the growth is expected to rebound in to 4.4 percent in 2021 with notes the restrictions are gradually eased and the wide availability of vaccine helps improve consumer and business confidence.

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