Macroeconomic insights on economic recovery after Covid-19 pandemic
Bank DBS Indonesia shares insights from global and Indonesian perspectives with customers to help them see business opportunities and adapt to new era of investment
"Bank DBS Indonesia has been organising the eTalk Series regularly since April 2020. This is part of our efforts to maintain interaction with customers in the midst of a pandemic and as a manifestation of our commitment to providing relevant insights regarding the economy and the latest capital market situation from global and Indonesian perspectives. Through this afternoon webinar entitled DBS Macro Economic Insights: Recovering from Covid-19, we hope that our customers will be able to understand the current macroeconomic situation through the insights provided by DBS Economists so they can explore the potentials for business and business growth, as well as portfolio development in the new era of investment. This is in line with our commitment as a trusted partner, including in wealth management and development,” said the President Director of PT Bank DBS Indonesia, Paulus Sutisna.
Economic contraction and slowdown in the second quarter of 2020 occurred alongside the implementation of Large-scale Social Restrictions (PSBB). This was indicated by low growth and inflation rates, a high fiscal deficit, a surge in debt burdens, and an escalation of geopolitical tension in various countries. As the number of positive cases of Covid-19 in Indonesia is increasing (marked by the extension of the PSBB in August), Indonesia experienced another deflation. Based on data from the Bappenas, the Gross Domestic Product (GDP) in the second quarter contracted by -5.32% yoy. Despite this, the market was still optimistic that the economy would recover in the next quarter.
In the DBS eTalk Series webinar entitled “DBS Macro Economics Insights: Recovering from Covid-19” (15/10), economists from DBS Group Research, Dr. Timur Baig and Radhika Rao, shared their findings on current economic growth and future projections after the economy recovers. Both provided an outlook on the economic mobility globally, in Asia and several neighboring countries, GDP, inflation, domestic and external financing needs, and changes in currency values caused by the Covid-19 pandemic. “A number of factors will critically determine the durability and strength of the recovery. They include continued improvement in the trade cycle, sustained fiscal and monetary accommodation, regional coordination to resume travel and tourism, and maintaining best practice in pandemic management would be key in ensuring a durable recovery,” said DBS Bank's Managing Director and Chief Economist Group Research, Dr. Taimur Baig.
The US presidential election in November has made market players more cautious, given that market turmoil can increase after the election. This is expected to increase demand for liquidity within the next few weeks. However, the US presidential election is not expected to change the direction of the competition between China and the US so there is still optimism that the turmoil and uncertainty will subside when the US presidential election is over.
The economic recovery rate in several countries, such as the US, Europe, and Japan, has flattened after a sharp jump in the third quarter. Trade prospects in Asia also appear to have improved as the trade chain resumed, as indicated by the increase in demand in China. This means that Asia’s economies have slowly stabilised. “While many challenges remain, there are signs that Asia’s economies are getting back on their feet, aided by some success in pandemic management, return of demand in China, ample monetary accommodation, and large fiscal measures in place to support consumers, businesses, and the financial sector,” said Senior Vice President, Economics & Strategy Research, DBS Bank, Radhika Rao. Nevertheless, Radhika believes that Indonesia will still have to go through a long process of pandemic management and restoring people’s livelihoods, in addition to several other factors, such as the impacts of the pandemic on the economy, the management of aid funds, the objectivity of Bank Indonesia, the Financial Markets, and other risk factors.
The country's GDP is expected to increase by 5.5% next year, while the fiscal deficit is predicted to continue the contraction to -5.5% from -6.3%. Furthermore, several other factors that pose a risk to Indonesia’s recovery are a delay in the resumption of normal activities if the number of positive cases of Covid-19 remains high, the high participation of foreign investors in the domestic debt market, fiscal health and the level of public debt and the ratio of foreign exchange reserves to gross external financing that is relatively lower when compared to other countries in the region.
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