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MacroInsight 14 February 2020

Macroeconomics Indicator

2019 2020F

GDP growth (%YoY) 5.04 5.07

Inflation (%YoY) 2.72 3.14

BI rate (% Year-end) 5.00 4.500

IDR/USD (Year-end) 14.155 13.500

CA balance (% of GDP) 2.82 2.51

Fiscal balance (% of GDP) 2.21 2.43

Foreign Reserves (US$ bn)

Money & Forex Reserves

Latest %YoY

M1 – Dec 19, Rp tn 6,136 7.4

M2 – Dec 19, Rp tn 1,565 6.5

Reserves – Dec 19, US$ bn 129.2 7.1

Sources: BI, BPS, CEIC

Luthfi Ridho

PT Indo Premier Sekuritas

luthfi.ridho@ipc.co.id

+62 21 5088 7168 ext:721

Estimating the impact of coronavirus During the outbreak, Indonesia GDP may be hit by as much as -0.5% in

2020, however during the recovery period GDP may pick-up by 0.7%.

Transmission of the outbreak to Indonesia will through exports, FDI and

tourism. We argue that China’s recovery will be stronger.

We acknowledge that the recovery timeline will be debatable. In our

simulation, economic growth may bottom in Q2 before slowly picking-up. Impact to Indonesia GDP during outbreak: -0.5%

The coronavirus epidemic may directly impact Indonesia’s economy via: 1)

lesser exports, 2) potential delay in FDI and 3) lower tourism revenue. We

estimate the overall impact will be c.-0.5% with export will drop the most (c.-

2%) followed by investment (-0.6%) and to lesser extent consumption (-

0.1%). In terms of sector, hotel and restaurant (-6.6%), mining (-6.5%),

manufacturing (-5.6%), transportation (-5.4%) and construction (-2.5%) will be

the most affected sectors. The sizable impact to Indonesia’s economy is due

to sizable investment and trade activity with China (c.17%).

The aftermath: strong recovery

We believe China economy will come stronger in the aftermath compared to

pre-virus economic situation. The nation’s production activity will be doubled

to fill empty stores and increase the nation’s inventory level. People will start

to work again and situation will be normalized. Implicitly, we argue the

recovery process will be stronger to offset the negative impact during the

outbreak. We estimate +0.7% economic recovery in 2021 largely from pick-

up in exports (+7%) and investment (+0.5%). By sector, transport (+7.4%)

along with hotel and restaurant (+7%) and mining (+4.5%) shall be the main

drivers.

Risk is recovery timeframe; faster recovery with some government’s

induced stimulus

We acknowledge the risk to our estimates remains with the recovery

timeframe. In our simulation, we think the outbreak will result in bottoming

economic growth in Q2 before slowly picking-up (figure 12). Delta positive

economic growth will be in Q5 onwards. Note that our estimates have not

taken into account any government stimulus by both Chinese and Indonesian

governments. If there will be some stimulus, it’s safe to assume a faster

recovery period.

Fig. 1: A correlation between China GDP and Indonesia GDP

Sources: CEIC, IndoPremier

0

2

4

6

8

10

12

14

16

China GDP

Indonesia GDP

GFC

SARS

% yoy

Tapering

% yoy

14 February 2020 MacroInsight

During the outbreak

In our simulation, we use a shock variable of lower China GDP growth

ranging at -0.4% to -0.8%. The number uses consensus estimate and some

justification from the SARS episode in 2003. The underlying reason of the

magnitude was during the outbreak: people will stop working, business

closed, no traveling to abroad or domestic and shops are empty due to panic

buying to have adequate buffer at home.

Fig. 2: Impact of Corona outbreak in China to Indonesia economy

Sources: IndoPremier

We see the above reason will transmit to Indonesia economy via two paths:

indirect and direct. First, the indirect channel of China slowdown is through

further decline in global commodity prices and through countries that have

high dependency on China tourist such as Thailand or Philippines. Both will

affect Indonesia’s exports value and volume. Second, the direct impact is to

lower external trade with China, delay in FDI or investment from China and

decline in tourism revenue from China. All in all, we simulate the above

situation into a simple VAR model and generate the impact of a reduced

Indonesia GDP growth by 0.5%, ceteris paribus. Implicitly, the model

suggests the close relationship between Indonesia economy and China.

Fig. 3: Shanghai port container volume yoy - port activity already

suggest lower external trade activity Fig. 4: Impact to China economy range at -0.4% to -0.8%

Sources: Bloomberg, IndoPremier Sources: Bloomberg, IndoPremier

Corona outbreak- People not working

- Business stop

- Shops are empty,

inventory dried

China GDP In the range of

0.4% – 0.8 %

Impact to

Indonesia

Indirect Impact

Global economic

slowdown

Direct Impact

Decline in

China Tourist

Further decline in

commodity price

Decline tourism sector

revenue

China is Indonesia main

trading partner Decline in export &

import volume

FDI Delay/decline Decline/delay in

incoming investment

Less global revenue on

tourism: Thai, Phil, etc

GDP

BOP

Indo

Exports

Impact to Indonesia:

decline in real economic activ ity growth by -0.5% (baseline)

-7.9-10

-5

0

5

10

15

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan-20

5.96.0

5.55.4

Best case Median

Before Corona After Corona

-0.4-0.6

14 February 2020 MacroInsight

Fig. 5: Indonesia Non-oil&gas exports destination share (%) Fig. 6: Share of investment in Indonesia country origin (%)

Sources: CEIC, IndoPremier Sources: CEIC, IndoPremier

Fig. 7: Share of incoming tourist to Indonesia (%) Fig. 8: Share of intermediate input from China (%)

Sources: CEIC, IndoPremier Sources: CEIC, IndoPremier

Fig. 9: Impact summary Fig. 10: Sector impacted summary

Sources: IndoPremier Sources: IndoPremier

China , 16.68

Others , 83.32

China , 17.1

Others , 82.9

China , 12.86

Others , 87.14 24.3

24.4

25.8

25.9

27.3

27.5

28.3

30.2

31.5

36.9

38

38.5

0 5 10 15 20 25 30 35 40 45

Mexico

Brazil

Philippines

South Africa

Malaysia

Indonesia

India

U.S

Thailand

Japan

South Korea

Vietnam

-2

-0.6

-0.1

-0.5

Exports

Investment

Consumption

Economic Growth

-6.6

-6.5

-5.6

-5.4

-2.5

Hotel & Restaurant

Mining

Manufacturing

Transportation

Construction

14 February 2020 MacroInsight

The aftermath period: Strong recovery

In the aftermath, we believe China economy will come stronger to rebuild the

damage and the economic activity. Workers and business people will have

the tendency to work twice as hard to speed up the recovery process. The

nation’s production activity will be doubled to fill empty stores and increase

the nation’s inventory level. Basically, the situation will be normalized and

economic activity will rise again. We argue here that the recovery process

will be stronger to offset the negative impact during the outbreak.

Fig. 11: Aftermath simulation and the impact to Indonesia economy

Sources: IndoPremier

The timeframe of the recovery period will always be a discussion material. In

our simulation, we think the outbreak will have the most severe impact, while

the recovery period will happen in the subsequent four quarters. During the

recovery period our simulation suggest the impact to Indonesia economy is

an additional 0.7% to the real GDP number.

Fig. 12: Simulation summary

Sources: Simulation, IndoPremier

-1.0

-0.5

0.0

0.5

1.0

1.5

1 2 3 4 5 6 7 8

Accumulated Response of INDOGDP

Periods (quarter)

%

14 February 2020 MacroInsight

Fig. 13: Aftermath simulation summary Fig. 14: Aftermath sector simulation summary

Sources: IndoPremier Sources: IndoPremier

6

0.5

0.1

0.7

Exports

Investment

Consumption

Economic Growth

7

4.5

2.1

7.4

3.1

Hotel & Restaurant

Mining

Manufacturing

Transportation

Construction

14 February 2020 MacroInsight

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subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or

indirectly, related to the specific recommendations or views expressed in the report.

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representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness.

Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any

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offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT Indo Premier Sekuritas or its

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