In this latest Wellington Perspective, we lay out the pathway for socio-economic recovery from the COVID-19 crisis currently being pursued by the Indonesian Government.
Based on our assessment of the current dynamics in key market sectors - coupled with the positive trends evident in both business and consumer sentiment - we remain optimistic that Indonesia’s economy will largely return to pre-pandemic conditions by 2022.
There are three factors underlying this belief on our part:
1) The Delta variant is under control
The impact of the highly-transmissible COVID-19 Delta variant is being well managed by the Indonesian Government, principally via the imposition and enforcement of nationwide Community Activity Restrictions (‘PPKM Darurat’) and the mass vaccination programs across all regions of Indonesia. President Jokowi has set a goal of having 70% of Indonesian citizens fully vaccinated by end-2021.
Consequently, the active COVID-19 caseload in Indonesia has peaked and is now in sharp decline. This contrasts vividly with the poorly-managed and devastating growth of COVID-19 in India during 1H 2021 and the situation in countries such as the Philippines, Malaysia, Australia and USA where the Delta variant continues to drive recurring peaks of Coronavirus cases
2) Jakarta will lead the economic resurgence of Indonesia
Buoyed by the strong growth in GDP for 2Q 2021 (GDP increased by 7% year-on-year), Indonesia pulled out of recession by reporting the first expansion of the economy in five quarters and the strongest annual growth rate in 17 years.
Surging exports (including strong growth in commodity shipments), a rebound in household consumption, new investment funding streams, and expansive government spending all served to boost overall economic activity.
The Jakarta metro area is showing a full vaccination rate of nearly 60%, which we believe is likely to be understated due to distortions in the reporting system. Coupled with the progressive easing of mobility restrictions in the short term, we see the capital city (in combination with other large population centers in Java) being the primary engine for economic resurgence in 4Q 2021 and beyond.
3) The Indonesian government is being highly proactive
The government expects GDP to grow up to 3.7% - 4.5% in 2021 on the back of a broad-ranging package of strategic policy initiatives and regulatory reforms - all underpinned by the flagship Omnibus Law and the National Economic Recovery Program.
Household expenditure and investment financing are anticipated to contribute to more than 90 % of the incremental GDP growth next year.
President Jokowi is spearheading the policy approach adopted by the government, which has two primary thrusts - sustainable macro-economic recovery and robust social welfare provision - in order to stimulate overall purchasing power and consumption in the home market.
Priority sectors such as education, healthcare and infrastructure for mobility, connectivity and productivity are among the seven key ‘pillars’ of the State Expenditure policy being instituted by the government in 2H 2021.
We cover all of the above issues - and more! - in depth as part of the report pack available here
If you would like to discuss any aspect of this report, please feel free to contact us
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