DBS Bank's outlook on vaccination efforts, economic recovery and investment mapping | Bahasa
“DBS Macro Economic Insight is a manifestation of Bank DBS Indonesia's commitment to becoming a trusted wealth management partner for the future of banking by proactively continuing to enrich our customers' wealth management strategies with business and investment opportunities based on sharp analyses of macroeconomic factors that affect the movements of the financial world,” said Rudy Tandjung, Consumer Banking Director, PT Bank DBS Indonesia.
Taimur Baig, Chief Economist at DBS Bank, stated that since 2020, the business cycle has been divided into five stages towards post-pandemic economic recovery, namely pandemic, vaccinations, after which the central bank will consider inflation, the job market, and the formulation of new policies (policy direction). Currently, ASEAN countries, including Indonesia, are still at the pandemic and vaccination stage, whereas developed countries have already reached the inflation and job market stages. The number of positive cases in Indonesia surged to 15,308 as of June 23, 2021 after a temporary slight decline.
In the US and China, the world's two largest economies, about 53% and 40% of the population has been fully vaccinated. “As US inflation is still below the Fed's average target, the Fed is expected to maintain its accommodative fiscal policy. On the other hand, the US also sees a recovery trend in consumption levels that will affect future inflation rates and the Fed’s interest rate policy. Meanwhile, China reported a 29% increase in export value in 2021 compared to 2019, supported by an upward trend in export values across Asia. The value of foreign investment coming into China still shows a positive level, at more than USD950 billion since 2015, but foreign exchange reserves tend to remain stagnant since it is offset by investment outflow," said Taimur Baig.
Despite the challenges caused by the recent increase in the number of Covid-19 cases, there have been relative improvements in Indonesia’s economic recovery efforts. The government's efforts to boost vaccinations are expected to create positive sentiments and help accelerate economic recovery.
On the same occasion, Radhika Rao, DBS Group Research Senior Economist, commented that, “State deficit limit for 2020-2022 has been temporarily relaxed to allow for greater flexibility in responding to the health crisis. Thus, the 2021 deficit target is set at 5.7 percent of GDP, with a projected improvement to 4.5 to 4.8 percent in 2022.”
In terms of investment, Radhika explained that the size of Indonesia’s local currency bond market will reach Rp4,799 trillion during the period, up by 36 percent year-on-year. Government bonds contribute approximately 89 percent to the total, followed by corporate bonds at 9 percent, with the central bank contributing the rest. The size of the domestic government bond market has almost doubled to 28 percent of GDP in the last decade. In terms of monetary policy, Radhika said that Bank Indonesia strived to be accommodating while maintaining financial market stability. “In terms of the rupiah currency, Indonesia's fundamentals are better than in 2013 during the Taper Tantrum or the rising yields of US bonds. This means that despite some impacts on EM assets due to the tapering, this does not necessarily become significant after the volatility,” he noted.
“Vaccinations clearly play an important role in economic recovery efforts and investment mapping in the future. Indonesia's public finances have experienced significant improvements over the previous two decades. Interest rate cuts are unlikely, but financial market stability will be prioritised. Therefore, the main focus now is to accelerate vaccine distribution and help Indonesia come out of the pandemic-triggered crisis," Radhika concluded.
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