The Long Road to Recovery Frederico Gil Sander Lead Economist - PowerPoint PPT Presentation

Indonesia Economic Prospects July 2020 The Long Road to Recovery Frederico Gil Sander Lead Economist

Competitiveness reforms to boost Indonesia’s speed: - Openness - Human capital Entering - Infrastructure 2020, the road 2045? seemed 2022 long but 2021 straight… 2020 2019: Indonesia crosses Upper-Middle Income threshold

…but then… AWAS! COVID DI DEPAN

Annual World GDP (yoy growth) World Advanced Economies Emerging Market and Developing Economies 6 …covid -19 4 led to a 2 major 0 global -2 economic -4 shock… -6 -8 2017 2018 2019e 2020f 2021f Source: World Bank Global Economic Prospects Note: (e) is estimated, (f) forecast

Commodity Prices and Projections (Index: 2019 = 100) Energy Index Food Index Metals and Minerals Index 120 110 100 …lower commodity 90 prices… 80 70 60 50 2017 2018 2019 2020e 2021f 2022f Source: World Bank commodity price projections, April, 2020 Note: 2019=100, (e) is estimated, (f) is forecast

Exchange Rate, Bond Yields, and Capital Flows (Indonesia) (NEER Index and Yield Index, LHS; Capital flows, USD million, RHS) Capital flows Exchange Rate (NEER) 10-year bond yield Pre-Covid19 Covid19 120 Q4 2019 Q2 2020 Q1 2020 …massive 115 2000 capital 110 0 outflows 105 from -2000 100 emerging 95 -4000 markets… 90 -6000 85 80 -8000 Source: IIF, BI, BIS, World Bank staff calculations Note: October 2019 =100 for NEER and 10-year bond yield

Tourism Indicators (Indonesia) (yoy growth, LHS; yoy growth for GDP, RHS) Visitors Arrivals Services Exports Services Exports (Transportation) (GDP) Accommodations Covid19 40 6 5 30 4 …and 20 3 freezing 10 2 tourism 0 1 0 -10 flows -1 -20 -2 -30 -3 -40 -4 Source: BPS, World Bank staff calculations

7-Day Moving Average of Google Mobility Index (Percent change from baseline (=0)) Domestic 5 mobility 0 restrictions -5 to manage -10 the spread -15 of Covid -20 limited both -25 supply and -30 demand -35 15/02 15/03 15/04 15/05 15/06 Source: Google Mobility Data Index

GDP by Industry GDP by Expenditure (contributions to growth yoy, percentage points) (contributions to growth yoy, percentage points) Agriculture Construction Private consumption Government consumption Manufacturing Other industry Investment Net exports Trade, transport & hospitality Health, edu. & public admin. Change in inventories Stat. discrepancy Knowledge intensive services Other services GDP GVA 5.50 5.1 5.5 4.9 4.50 4.5 3.50 3.0 3.5 3.0 2.50 2.5 1.50 1.5 0.50 0.5 Average 2017 - 2019 Q1 2020 -0.50 -0.5 Average 2017-2019 Q1 2020 Source: BPS; World Bank staff calculations Notes: Knowledge intensive services consist of information and communication, financial and insurance activity, real estate, and business services. Trade, transport & hospitality consist of wholesale and retail trade, repairs, transportation and storage, and accommodation and F&B activities Labor-intensive sectors slowed, while knowledge-intensive sectors were resilient

Retail sales, consumer confidence, BI Business Survey, BI PMI, and exports (index, LHS ; yoy growth, RHS) CCI BI PMI BI Business Survey RSI Exports 140 10 Covid19 120 100 5 80 60 0 40 20 -5 The shock deepened 0 in Q2, likely leading -20 -10 the economy to -40 contract -60 -15 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Source: Bank Indonesia, BPS; World Bank staff projections Note: CCI is Consumer Confidence Index, RSI is Retail Survey Index, BI PMI is Bank Indonesia’s Prompt Manufacturing Index, BI Business Survey Index. Other than BI PMI, the charts shows the average value of months in each quarter. The right-hand side axis shows yoy growth for exports and retail sales index

Share of household heads who experience income and job losses relative to pre-crisis* by sectors (Percent) Job Loss Income Loss Transport, Trade, Hotel and Storage and Agriculture Manufacturing Construction Oth. Industry Restaurant Communications Oth. Services 100 90 90 84 80 70 70 61 60 55 54 49 50 Livelihoods have 40 35 34 33 30 26 been severely 20 20 16 14 affected 10 0 Source: World Bank staff calculation. Note: Job loss here includes both unemployment and working age individuals whom become inactive. This is because it was not feasible to distinguish between the two in Susenas March 2019 data from which the simulation is based on. (*) Pre-crisis level refers to year 2019, and adjusted with the actual coverage of social assistance (SA) measures

Healthcare IDR 84.6 trillion (0.5 percent of GDP) Social Protection IDR 139.8 trillion (0.9 percent of GDP) Supporting MSMEs IDR 121.1 trillion (0.7 percent of GDP) In response to the Support to SOEs shock, the government IDR 112.2 trillion (0.7 percent of GDP) announced a series of fiscal packages… Tax Relief IDR 123 trillion (0.8 percent of GDP) Source: World Bank staff compilation from various sources. Note: The written figure may be different from the Government-announced stimulus package.

…which includes a massive expansion of social assistance to protect livelihoods Program name Increased coverage above pre COVID-19 Benefit incidence & duration Sembako Additional of 5 million households (HH) to 20 million Increased benefits of IDR 200,000/month (for 12 months) (Staple food) HH , identified among those already in the DTKS Additional of 800 thousands HH to 10 million HH , PKH Increased benefits by 25% for 12 months identified among those already in DTKS • Kartu Prakerja Training: IDR 1 million/month, Additional of 3.6 million to 5.6 million individuals in • (Pre-employment Benefits: IDR 600,000/month (4 months), IDR total card) 50,000/months (3 months) UCT IDR 600,000/month (3 months), then IDR 300,000/month 9 million HH (Non-Jabodetabek) (6 months) • Sembako 1.2 million HH in Jakarta, Food package equivalent to IDR 600,000/month (3 • (Jabodetabek) 600,000 HH in periphery districts ( Bodetabek ) months), then IDR 300,000/month (6 months) All households subscribing to 450VA and 900VA HHs with 450 VA – fee waiver (6 months) Electricity Subsidy electricity connection. HHs with 900 VA – 50% off bills (6 months) BLT Dana Desa 11 million rural HH , prioritizing those who lost main IDR 600,000/month (3 months), then IDR 300,000/month (Village Fund) source of income due to COVID-19 (3 months) Source: World Bank staff compilation from various sources. Note: The written figure may be different from the Government-announced stimulus package.

Key economic indicators (Indonesia) 2019 2020e 2021f 2022f Baseline Scenario Real GDP (Annual percent change) 5.0 0.0 4.8 6.0 Consumer price index (Annual percent change) 2.8 2.6 2.8 3.0 Current account balance (Percent of GDP) -2.7 -1.9 -2.0 -2.1 Government budget balance (Percent of GDP) -2.2 -6.3 -4.1 -3.1 Severe Scenario • Under the assumptions of longer mobility restrictions and deeper global economic contraction, the annual real GDP growth is estimated to reach -2.0 percent in 2020. Source: Bank Indonesia; Central Bureau of Statistics (BPS); Ministry of Finance; World Bank staff calculations Note: 2020-2022 are estimated and forecast figures. Overall, the recovery will be gradual and GDP is expected to be flat in 2020, contributing to a narrowing of the current account deficit

Change in the poverty rate in 2020 from 2019 under multiple scenarios (poverty rate in percent) 2.5 2.2 2 1.5 1.3 1 0.5 0 Without Government -0.5 -0.4 -0.7 support, millions -1 -1.2 would fall into -1.5 No Additional SA Full Additional SA No Additional SA Full Additional SA poverty No Covid19 Mild Impact Severe Impact Source: BPS, World Bank staff calculation. Note: Benchmark level refers to forecasted changes in poverty level in 2020 without Covid-19 (Poverty rate = 8.7 percent). ‘SA’ stands for Social Assistance. Mild impact assumes zero growth, whereas Severe Impact assumes -2 percent growth. ‘No additional SA’ refers to change in poverty rate relative to the pre -crisis level when there is absence of government compensation; ‘Full Additional SA’ scenario shows 2020 poverty rate (simulated), after taking into account the full social assistance package. 1 percentage points of poverty equals 2.6 million individuals.

Household-Heads who received Social Assistance Programs* (percentage of household-heads) Do not receive any Social Assistance Program Receive any Social Assistance Program HH-head experiencing HH-head experiencing job HH Bottom 40 income loss loss 44 49 54 Assistance needs to reach more of those in need to fulfil its 56 51 46 full potential to mitigate the shock Source: World Bank staff calculation. Note: The above figure presents number of surveyed household-head who receive any kinds of social assistance as of Round 1 Hify Survey (1-17 May 2020). (*) includes PKH, Sembako, BLT, Kartu Pra-Kerja, public works

Road to The Long (and Winding) Recovery Jalan panjang yang berliku Namun kuharus mampu menempuh

MUDAH MENYEBAR Now the road to recovery has three sharp curves that policy makers must handle

Handling the pandemic curve (daily confirmed new COVID-19 cases, thousands) 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Source: Our World in Data