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ECONOMIC UPDATE - What to expect - No magic bullet



Covid-19 new epicenter

Indonesia has become the new epicenter of the Covid-19 pandemic, surpassing India to become the country with the world’s highest cases of new infections. Cases and deaths have skyrocketed in the past month as the highly contagious delta variant occurs. As of July 19th, 2021 Indonesia recorded an increase of 34,257 Covid-19 cases. Furthermore, there were 1,338 additional deaths reported at the same time. Overall, total confirmed cases stood at 2.91 mn people. Due to the cases spike, government extended the Emergency Public Activity Restriction (PPKM) for 5 days until July, 25th 2021 in Java & Bali which contribute 60% of national GDP. 


Lower economic growth to 3.5% YoY

There is no magic bullet to overcome the pandemic instantly. The partial lockdown may contain the virus but cause harmful side effects to the economy. It will dampen the household consumption, investment and trade performance in 3Q21. Thus, we revised down the Indonesia economic growth estimate from previously 3.8% YoY (latest revision in May-21) to 3.5% YoY. It is still lower than the newly revised estimates of Ministry of Finance (MoF) from 4.3-5.3% YoY to 3.7-4.5% YoY and Bank Indonesia (BI) from 4.1-5.1% YoY to 3.8% YoY, respectively.


Aiming for herd immunity

As of July 20th, 2021, as many as 42.4 mn Indonesians have received their first vaccinations. Meanwhile, 16.5 mn people have received their second vaccination. Besides, Indonesia has 137.6 mn dosages of vaccines so far. However, the government aims to inoculate a total of 181.6 mn people by early 2022 to achieve the herd immunity. The vaccine will be free since President Jokowi has dropped the plan of paid vaccine as it could hamper efforts to guarantee equal access to the vaccine.


Extended Emergency PPKM

Under the Emergency PPKM, Indonesia mobility is only forced down by 10.1% (cut off July 18th) compared to previous Micro PPKM as it can be seen in Exhibit 3. Based on our source from Ministry of Health, ideally, Indonesia needs 4 weeks of strict lockdown to press the current bed occupancy rate to tight level at 65-75%. We have expected that the Emergency PPKM would be extended to 2-4 weeks before the government recently extended the Emergency PPKM for 5 days until July 25th. If the trend of cases decreases eventually, on July 26th the government will open it gradually. Next, the government will categorize the lockdown policy based on 1-4 level to indicate the severity of Covid-19 in particular region. We see the looser lockdown will be needed to let the economy grow while it circumvents the possibility of 3rdwave of pandemic. 


New PEN budget at Rp744.8 tn

In response to the extended Emergency PPKM, MoF increased the National Economic Recovery (PEN) program budget by 6.4% from originally Rp699.43 tn (USD48.2 bn) to Rp744.75 tn (USD51.4 bn). Healthcare spending takes the biggest share of the upgraded budget where it will go to isolation facilities, vaccination, recruitment of 3,000 doctors and 20,000 nurses and compensation for hospitals involved in Covid-19 handling. Additional social protection budget covers higher cash payment, basic commodities and subsidies on electricity fares for the most vulnerable families. The overall revisions are stated below: