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ECONOMIC UPDATE - GDP - Prologue of low growth



Covid-19 impact worse than expected

Continuing the global economic downturn in 2019, Covid-19 hit us all where Indonesia’s economic growth plunged sharply in 1Q20 that contracted by 2.41% QoQ but still grew positively by 2.97% YoY. The growth is much lower than consensus estimate of 4.00% YoY and ours of 4.53% YoY. It displays the weakest growth since 2001 where this sends strong signal that in 2Q20 Indonesia will see a notably worse growth performance with strict social distancing measures (PSBB) further dampening domestic demand. PSBB measures implementation to contain Covid-19 are expected to remain until Jun-20 or in another words it will shut down the activity in a full quarter. However, restriction for people mobility is essential to flatten the curve of Covid-19 cases. Until the vaccine is ready to be distributed, 1Q20 is just a prologue towards the weaker growth in 2020.


Weaker growth almost across the board

Statistics Indonesia office (BPS) recorded 1Q20 GDP is equivalent to Rp3,923 tn (USD260.6 bn) of nominal GDP and Rp2,703 tn (USD179.2 bn) of real GDP. All of component of expenditure in GDP contracted on quarter basis where household consumption is still the biggest contributor by 58.1% of GDP and grew by 2.84% YoY. The second biggest contributor is GFCF (investment) where it contributed 31.9% of GDP and grew by 1.70% YoY. The third biggest contributor is government expenditure where it contributed 11.4% of GDP with growth of 3.74% YoY. Non-profit institutions serving households (LNPRT) contracted by  -4.91% YoY but still contributed by 1.28% of GDP. Export and import grew at 0.24% YoY and -2.19% YoY, respectively, where the trade balance contributed -0.83% to GDP.


Consumption hit particularly hard

Overall, consumption slowed down from 4.97% in 4Q19 to 2.84% in 1Q20 or contracted by 1.97% QoQ. Actually it has shown a slowing trend since 2019. Food and beverages except restaurant contribution still dominated the household consumption with stable growth around 5.10% YoY over years. Since Covid-19 has hit global tourism in the beginning of 2020, restaurant and hotel contracted at 4.78% QoQ (though it still grew positively at 2.39% YoY). This may bring the contraction even worse in 2Q20, not only the expenditure related to leisure, but tourism in general. The government has increased its spending to counterbalance the weakening growth by 3.74% YoY but it can not be compared with the higher growth in 1Q19 at 5.22% YoY since 2019 is election year. Although the expected fiscal deficit is widening to 5.07% of GDP in 2020, the government keeps their commitment to allocate more fund on the healthcare sector and another economic stimulus in 2020 to be funded by obligation issuance.


Sectoral weakening growth

Covid-19 almost hit every sectors. The biggest share to GDP came from Information and Communication sector where it grew at 9.81% YoY, Financial Services and Insurance at 10.7% YoY and Manufacture at 2.06% YoY. Laggards came from, Agriculture, Forestry and Fishery sector that slowly grew at 0.02% YoY, Mining at 0.43% YoY and Transportation and Warehousing where it slowly grew at 1.27% YoY. We see that the growth of many sectors , excluding the telecommunication-related sector, decreasing due to the weakening conventional business.


To expect upcoming lower growth

The impact of Covid-19 actually came faster than expectation, signalling the worse growth in the upcoming periods. With plenty predictions of the end of Covid-19, we see that the PSBB will be implemented in every months in 2Q20. We forecast a slower than 1Q20 path of growth in 2Q-3Q20 before growing at faster rate in in 4Q20, Therefore, we are reviewing our current 2020 growth forecast of 2.5% but still maintaining higher growth forecast of 4.1% YoY in 2021.