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Bank Indonesia Forecast a U-Shaped Economic Recovery

  • Indonesia’s economy could decline from 4 to 4.8 percent in the second quarter of this year.
  • Fears of the prolonged global economic slowdown had also exerted pressure on emerging market assets.
  • The government predicts this year’s economy to fall 0.4% in a worst-case scenario, or expand 1% under a best-case scenario.
  • Visit The Financial Today’s homepage for more stories.

Jakarta • Bank Indonesia has projected a U-shaped recovery for the country’s economy as the coronavirus pandemic has taken on a greater toll than initially anticipated, threatening to trigger a severe contraction in the second quarter.

During the early period of the pandemic in Indonesia, the central bank and government said they expected the economy to see a V-shaped recovery.

Indonesia’s economy could decline from 4 to 4.8 percent in the second quarter of this year, said Bank Indonesia Senior Deputy Governor Destry Damayanti on Monday, adding that recovery will be slower than anticipated as COVID-19 cases continue to increase across the country.

During an online discussion, Destry said that the central bank predicts “a U-shaped recovery because the number of coronavirus cases continues to increase and has not reached its peak,” adding that reopening the economy would make maintaining the number of cases tougher.

Fears of the prolonged global economic slowdown had also exerted pressure on emerging market assets and hit the rupiah exchange rate as investors steered away from high-risk assets in favor of safe assets, Destry said.

For the fourth time this year, the central bank lowered its benchmark interest rate to 4% last week to boost the economy and reiterated its commitment to a US$40 billion bond-buying program to save the economy and reduce the debt burden on the government.

Yesterday, 20th July, at 12:00 p.m. Jakarta time, the rupiah depreciated 0.78% to Rp 14,817 against the US dollar, losing around 2.5% of its value since the beginning of last week.

Moreover, the government has provided Rp 695.2 trillion ($47.35 billion) in stimulus to boost economic growth and expects this year’s budget deficit to hit 6.34%. They also predict this year’s economy to fall 0.4% in a worst-case scenario, or expand 1% under a best-case scenario, with the economy tipping to contract 3.8% in the second quarter.

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