How the Pandemic is Affecting

Economy
Yose Rizal Damuri
Centre for Strategic and International Studies
 Covid-19: No sign to retract….
World: Daily New Cases Indonesia: Daily New Cases
Policy choices on the pandemic affected the
impact…..
Separating Each Person Separating Infected from
from One Another Others
Lockdown and Test, Tracing and
Quarantine Isolation

Heavy Economic Lesser Economic

Consequences Consequences

Consistent Resources-intensive
Implementation and Consistency
Covid 19 and Economy: Disruption in all
aspects…
Disrupt flow of people

Disrupt flow of goods

Disrupt flow of money

Disrupt flow of information

It has stalled global economy…
Economic Growth of Selected Economies (%) Trade Value Index (Jan 2018=100)
-25 -20 -15 -10 -5 0 5 105

-21.7 UK 100
-19 French
-18.9 Mexico 95
-17.3 Italy
-17.1 90
Malaysia
-16.5 Philippines 85
-13.2 Singapore
-12.2 Thailand 80
-11.7 Germany
-9.5 US 75
-8.5 Rusia
-8.2 Sweden 70
-5.3 Indonesia
-2.9 South Korea 65

Sep-2018

Sep-2019
Nov-2018

Nov-2019
May-2018

May-2019

May-2020
Mar-2018

Jul-2018

Mar-2019

Mar-2020

Jul-2020
Jan-2018

Jan-2019

Jul-2019

Jan-2020
-0.7 Taiwan
0.4 Vietnam
3.2 China

Q2 Q1 G20 OECD
Lower demand means lower prices…
Commodity Price Index (2016 =100) Price of Imported Manufactured Goods (2016 =100)

150 118
140 116
130
114
120
112
110
100 110

90 108
80
106
70
104
60
50 102
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep 100
2019 2019 2019 2019 2019 2019 2020 2020 2020 2020 2020

Oct-17

Oct-18

Oct-19
Jul-17

Jul-18

Jul-19

Jul-20
Jan-17
Apr-17

Jan-18
Apr-18

Jan-19
Apr-19

Jan-20
Apr-20
All index Energy index Non-Fuel index
Also happened in Indonesia: Consumption and business
activities are dwindling…
Consumer Confidence Index
• Due to containment activities, many
113.00
103.00
businesses comes to a halt
93.00 • Only less than a half of work in Jakarta can
83.00 be done from home
73.00
63.00
• Creating massive job-loss and reduce
53.00 purchasing power
43.00
07/01/2018 12/01/2018 05/01/2019 10/01/2019 03/01/2020
• Many economic sectors get hit severely
due to falling demand, in particular those
Purchasing Manager Index
less necessity, durable and leisure-related
sectors, as well as those related to human
movement
Number of Employees Losing their Jobs by 26 June 2020
Unpaid Leave Unemployed
Formal 1,058,284 380,221
Informal 538,385 318,959
CEIC Database
 Apparently affecting most sectors….
Sectoral Growth Q2 yoy (%)
-35 -30 -25 -20 -15 -10 -5 0 5 10 15 • GDP declined by 5.32% in Q2, and 3.49 in
Manufacturing Q3
Agriculture
• Consumption declined by 5.74%, while
Trade
investment shrank by 8.6%
Construction
Mining • Tourism is among the most affected. Bali’s
IT Services hotel occupancy rate in June was only
Financial Services
36%, much lower than 60% last year
Government
Transportation and Storage • Passengers of domestic air transportation
Education Services has dropped by 98% in May
Real Estate
Restaurant and Accomodation • Before shopping mall closure in 10 April,
Other Services visitors had fallen by 90%; affecting many
Business Services restaurants
• Manufacturing sectors are affected from
Medical Services
Utilities
Water weak demand and supply chain
disruption
Q2 Growth yoy (%)
Affecting food sector and manufacturing….
Motor Vehicle Sales (Units)
120

Thousands
100

80

60

40

20

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2018 2019 2020

CSIS Covid19 Dashboard CEIC Database

Responds and Potential
 Global economies depend on fiscal supports…
Country Fiscal % of
• Fiscal Stimulus Stimulus GDP
• Increasing funds to tackle health issues, Singapura SGD 54,4 10,9%
including purchasing of PPE and medical miliar
equipment Indonesia IDR 695,2 4,2%
• Tax incentives, including tax payment triliun
postponement
Tiongkok RMB 1,3 1,2%
• Social assistance, safety net and cash transfer
triliun
• Stimulus and support for affected sectors
Korea Selatan KRW 16 0,8%
• Monetary and financial measures triliun
• Policy rate reduction Malaysia RM 6 miliar 0,4%
• Quantitative easing
Amerika Serikat USD 2,1 10,5%
• Liquidity swap arrangement
triliun
• Credit rescheduling
• Credit facilities for business Australia AUD 189 9,7%
miliar
In Indonesia as well…

7% 38% 11%

24% 0% 6%
 Recovery might take different phases….
IMF World Economic Outlook
 Prospect of recoveries remain uncertain…
OECD Economic Outlook September 2020
Budget Assumption 2020 World GDP Q-4 2019=100
2018 2019 2020f Current Adverse Severe
Real GDP 5.2 5.0 -1.0 5.3 2.3 -0.4
Private consumption 5.0 5.0 0.0 5.0 3.2 1.6
Government spending 4.8 3.2 4.0 4.3 6.8 3.7
Investment 6.7 4.6 -5.0 6.0 1.1 -4.2
Exports 6.6 -1.0 -6.0 3.7 -14.0 -15.6
Imports 12.0 -7.7 -6.5 3.2 -14.5 -16.7
Macro Indicators
Inflation (%) 3.2 3.0 2.0 3.1 3.9 5.1
USD/IDR 14,390 13,866 15,500 14,400 17,500 20,000
ICP (USD/barrel) 63 38 31
Indonesia’s situation is better….
115.00 120

115
110.00
110
105.00
105

100.00 100

95
95.00
90
90.00
85
85.00 80

12/2019
03/2019
04/2019
05/2019
06/2019
07/2019
08/2019
09/2019
10/2019
11/2019

01/2020
02/2020
03/2020
04/2020
05/2020
06/2020
07/2020
08/2020
09/2020
AFF Mining & Quarrying (MQ)
Investment 2019=100 Consumption 2019=100 Manufacturing Electricity & Gas Supply (EG)
GDP 2019=100 Construction
But it will cost Indonesia’s economy over a
long term…
135 • The economic downturn has taken the
130 economy below pre-crisis level
125 • It will take a while to return to a new
120 potential level
• But the potential level will also be lower
115
• Five years after the crisis the GDP might
110 be 7-8% lower
105 • That would affect demand for various
100 products and services
2018 2019 2020 2021 2022 2023 2024
95 • Structural reforms might help
90 • Business climate and regulations
Potential Without Crisis • Human capital and skills
With Crisis Crisis with Reform • Embracing digital transformation
The economy also faces significant financial
risks….
• Accumulation of debt risks
• In some countries, sovereign debt is quite high and risky, while in others the
risk might come from corporation
• The impact of negative interest rates in many countries
• Fluctuations of exchange rates
• Unpredictability and fluctuations of commodity prices
• Escalated tensions between China – US and the continuation of trade
war
By way of conclusion….
• Crisis in an unprecedented scale, affecting demand, supply as well as
financial sector
• The recovery seems to be a long journey; a marathon rather than sprint
• Real time indicators show that the economy might be recovered but stagnant
• While health risks is looming
• Financial and monetary seems to be quite stable at the moment, but need
full attention
• Social burden remain high as unemployment would still be high
• Stimulus for economic and social purposes need to be fastened while
preparing for long journey
• Do not forget to prepare for structural reform to strengthen recovery and
post-Covid era: digital technology, repositioning GVC, and stronger
competition