World Bank predicts Indonesia’s economy sluggish due to COVID-19

A market in Bogor, West Java during the COVID-19 pandemic. (Indonesia Window)

Jakarta (Indonesia Window) – A World Bank’s Senior Economist, Ralph van Doorn, has predicted that Indonesia’s economic growth will slow or not grow this year due to the impact of the COVID-19 pandemic.

“We estimate Indonesia’s economic growth to slow into zero percent. This assumption is based on two months of implementation of the Large-Scale Social Restriction from April to May, and to June,” he said in an online discussion here on Tuesday, as reported by local media.

Ralph added that zero growth was also the impact of a slowing global economy in both developed and developing countries that affect commodity prices.

“Consumption will slow down due to layoffs resulting from decreased economic activity and consumer confidence,” van Doorn said, adding that investment growth will also sluggish due to uncertainty over the end of the COVID-19 pandemic, low commodity prices, and the weakening of the global economy.

The economic slowdown will also be reflected through the level of export-import.

“Imports fall faster than exports which is reflected in the balance of payments as we see an increase in the current account deficit,” he noted.

Van Doorn predicted Indonesia’s debt would be at the level of 37 percent of the GDP driven by higher deficits, slower growth, depreciation of the rupiah, interest rate shocks, and the amount of loans to finance stimulus packages.

He said based on various considerations and predictions, the World Bank has prepared the worst scenario when the Indonesian economy would contract to 3.5 percent of GDP.

“If the Large-Scale Social Restriction is implemented for four months it will cause an economic contraction of 3.5 percent of GDP,” he stressed.

However, with the improvement of the Purchasing Manager’s Index (PMI) in China and the reactivation of the economy in Europe become a positive signal for the world and Indonesia’s economy.

Reporting by Indonesia Window

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