Subsequent delay of recovery
After rocketing with 7.07% YoY of economic growth in 2Q21, Indonesia had to face the delay of joy due to the 2nd wave of Covid-19 in 3Q21. Back then, the government imposed strict mobility restrictions in form of level-based mobility restrictions (PPKM) in Jul-Aug 2021 in response to the daunting Covid-19 cases hike. Thus, the economy grew with slower growth rate at 3.51% YoY (1.55% QoQ) in 2Q21. It was lower than consensus at 3.60% YoY but higher than our estimate at 3.43% YoY. Thanks to the pick-up in export that grew on the back of higher commodity prices, withholding the downside effect of the PPKM. Eventually, the government succeeded to contain the virus with the consequence of curbing the household consumption as well. All in all, the growth was limited but it was just a delay. Moving forward, we are optimistic that the economic recovery will show in 4Q21.
Sharp fall of household consumption
As the impact of PPKM, even though the people had income, they were reluctant to spend, particularly on big-ticket items. This is understandable, as they wanted to feel safe during the uncertainty including the threat of lay off. Household consumption showed an obvious fall as the share of consumption to the GDP used to be stable around 55%, it dropped to 53% of GDP. From the component of consumption, the laggards are Apparel and Footwear (-0.46% YoY) and Transportation and Communication (-0.21% YoY). Meanwhile, the highest growth, though still limited, came from Restaurant and Hotel (2.48% YoY) and Health and Education (2.44% YoY). We see the Restaurant and Hotel, besides of the low base effect, can grow due to their involvement in providing self-quarantine services in 3Q21.
It has been a 17th straight month of trade surplus since the pandemic wreaked havoc in 2020. Commodity prices have risen to multiyear highs in recent months since 3Q21 and it brought trade surplus at USD11.7 bn in 3Q21. Besides, the surge demand from Indonesia’s important trading partners such as China and India heavily contributed to the impressive export performance. Eventually, it brought a 29.2% YoY of export growth while the import grew faster at 30.1% YoY in 3Q21. With this, export contributed a solid 22.7% of GDP in 3Q21.
More on commodity boom
The higher price of commodity also affects the energy sector. It is estimated that the net energy balance (energy revenue subtracted by energy subsidy) might achieve more than 90% YoY increase to around USD39 bn in 2021. Export will maintain its contribution towards the economy as we expect the high commodity prices condition will likely continue for the remainder of 2021. Moreover, oil prices just jumped after OPEC+ agreed to continue with their current output plan to gradually increase oil production by 400,000 barrels per day each month. To conclude, the commodity boom not only brings the export miracle but also fiscal relief to the government. This will open wider room for government to increase their spending in 4Q21 to boost the growth.
Better prospect ahead
The slower growth is understandable as the PPKM imposed in 3Q21. Moving forward, with the more relaxed PPKM, higher vaccination rate and lower Covid-19 cases, the economy gets stronger. Several indicators show that 4Q21 is way better than 3Q21 such as the Markit Purchasing Managers’ Index (PMI) increased from 52.2 in Sep-21 to 57.2 in Oct-21. Consumer confidence index also shows same prospect as it increased from 77.3 in Aug-21 to 95.5 in Sep-21. We see the consumers are getting more confident in facing the economic challenges and opportunity ahead. By having a better prospect ahead, Indonesia is waving hand to say goodbye to the downside risk of the previous 2nd wave. Thus, we are reviewing our current estimate of the economic growth at 3.51% YoY in FY 2021 with probability the growth will be higher.