Indonesia Investments Report – July 2022 Edition
4 August 2022 (closed)
Jakarta Composite Index (7,057.35) +10.71 +0.15%
GDP Growth Q1 2022 5.01% (y/y)
Inflation July 2022 4.94% (y/y)
Central Bank BI 7-Day Reverse Repo July 2022 3.50%
While the Indonesian economy has been recovering ever since the second quarter of 2021, there is some concern that Indonesia will experience a small hiccup in Q1-2022 as the Indonesian government felt the need to tighten its social and business restrictions (to PPKM Level 3) in February 2022 due to the rapid spread of Omicron in society. It is a decision that should somewhat limit economic activity.
The PPKM Level 3 restrictions, which were tightened in the second week of February 2022 in the urban centers on Java and Bali, included the following:
Meanwhile, in several cities on Java (such as Madiun, Magelang, and Cirebon) PPKM restrictions were still at highest alert (PPKM Level 4) at the start of March 2022.
While Indonesia is certainly not in panic-mode (as it was in Q2-2020), these PPKM restrictions do still somewhat undermine economic activity (for example, because the restrictions make people think twice before visiting a mall or restaurant). That is why economic growth is still no allowed to accelerate at full speed.
In that context, in early February 2022 Indonesian Finance Minister Sri Mulyani Indrawati stated that “the new COVID-19 variant undermines Indonesia’s economic recovery; a recovery that is still in its early stages, and so I do see some weakness in Q1-2022”. She further added that the presence of Omicron implies several potential risks that can refrain economic activity from reaching a higher level. These risks are related to monetary policy, uneven national economic recovery, rising inflationary pressures and supply chain disruptions that can disturb output in the manufacturing sector.
In late-February 2022, Indrawati seemed to have become more optimistic (probably also supported by the fact that Omicron turned out to be a mild variant) citing the promising trade performance of Indonesia thanks to high commodity prices (which are likely to move higher because of the Russo-Ukrainian war) and strong imports (that hint at an increase in demand on the domestic market, including the country’s manufacturing sector, as well as solid export growth as Indonesia’s export products typically contain high import-content). However, Finance Minister Indrawati added that shocks remain possible, primarily brought about by monetary tightening in the US and Europe, the threat of increasing inflation (which is not yet felt in Indonesia), supply chain disruptions, and geopolitical tensions.
In the last week of February 2022 Finance Minister Indrawati also presented results of the government’s budget balance. In January 2022 Indonesia managed to record an IDR 28.9 trillion (approx. USD $2.0 billion) surplus (equivalent to 0.16 percent of the country’s gross domestic product, or GDP). This surplus is caused by a decline in government spending (as the national economy is stronger now than it was a year ago, hence requiring reduced spending on social/corporate assistance programs) and the increase in both tax and non-tax revenues thanks to high commodity prices, improved economic activity at home and the reduction in fiscal incentives compared to a year ago.
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This is the introduction of the article that is included in the February 2022 report. This report can be ordered by sending an email to info@indonesia-investments.com or a message to +62.882.9875.1125 (including WhatsApp).
Price of the February 2022 (electronic) report:
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