Indonesia: Measuring the probable impact of the coronavirus – UOB

Economist at UOB Group Enrico Tanuwidjaja assessed the potential effects on the Indonesian economy from the Chinese COVID-19.

Key Quotes

“The recent outbreak of corona virus (COVID-19) may bring about adverse economic implications, if prolonged. Despite Indonesia having a relatively low share of tourism over its GDP and is also less connected in terms of global value chain production activities, such a global epidemic could still put Indonesia in an unsettling position as the recovery of its exports market could be deferred and some of the important imports could be affected. After all, China is Indonesia’s largest trading partner for the past 7 years and Indonesia has been running a trade deficit with China since 2008, which has been getting wider.”

“Indonesia could minimize the negative exposure by increasing the exports size to other countries; especially to those with no or limited exposure against COVID-19 outbreak.”

“On the other hand, and contrary to some concerns, more than half of Indonesia’s imports from China are mainly capital goods, machineries (HS-84), and even handphones (included in HS-85) –not key food items… While slower imports of capital and machineries tend to bode well for current account deficit, we can’t ignore the fact that food and raw food imports substitute from other countries could mean higher import costs and these could carry over into inflationary pressures in the economy.”

“Through the impact of slower exports growth in some of the Indonesia’s key commodity exports and a high likelihood that it will take some time for Indonesia to diversify away its key commodity exports’ destination, our base case is for the ongoing outbreak (we conjecture for the outbreak to be contained within 6 months or earlier) to shave off 0.1-0.2ppt from GDP growth in 2020.”