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ECONOMIC UPDATE - GDP - Reversing the scar



Bouncing back in 2021

Indonesia has been catching a cold during the global pandemic. The symptom was obvious, starting with the drop of people purchasing power then the shutdown of firms. Panic started to kick in and the government had to step in. Gigantic stimulus and the mobility restriction acted as the bitter pill to cure. It left damage by scarring a contraction of 2.07% YoY in 2020. However, the cure is working. For the full year of 2021, the economy bounced back by recording 3.69% YoY of growth in 2021. This brings joy, as the annual growth is higher than the consensus at 3.5% YoY. It was mainly supported by the growth at 5.02% YoY in 4Q21. Thanks to the commodity boom that boosted the trade performance in the last quarter as it brought a fresh air after Indonesia experienced the 2nd wave of Covid-19 in the end of 3Q21. 


Thanks to vaccination

As the ease of PPKM in 4Q21, people tended to consume more even on the big-ticket items. According to Nielsen, 77% of Indonesians surveyed believe that the vaccination is key to regain a normal life under the pandemic and the majority is willing to have the vaccination. In the end of 2021, the government has vaccinated about 51.7% of the population with second dose. With higher vaccination rate, the consumption pattern changed as well. The average propensity to consume ratio increased marginally from 76.1% in Nov-21 to 76.2 in Dec-21. In addition, the savings to income ratio decreased as well from 14.6% in Nov-21 to 14.1% in Dec-21. This supports the notion that vaccination also helps household consumption to grow higher. This is important as household consumption is the 54.4% of GDP in 2021. Household consumption increased by 3.55% YoY in 4Q21 after a little growth at 1.02% YoY in 3Q21. All of the household consumption components showed a positive growth with the highest growth was Transportation and Communication (5.34% YoY).


Booster from international trade

Overall, Indonesia’s trade balance surplus was fantastic reaching USD35.3 bn in 2021 due to the commodity boom and the still-weak import that time. Eventually, it brought a 29.8% YoY of export growth while the import grew slightly faster at 29.6% YoY in 4Q21. Not so long, we have to realize that the commodity prices are getting to normalize. As the consequence, the monthly trade balance is bound to come under pressure. This already happened in Dec-21 where the trade surplus reached USD1.02 bn ‘only’, which is the weakest monthly surplus since Apr-20.


Leaving scar, providing momentum        

How do we know a scar is healing? The 3.69% YoY of economic growth in 2021 is sufficient to prove that Indonesia is healing. How long does a scar take to heal? It depends on the definition of full recovery itself. Indonesia's economic growth over the past 3 years has been stuck at around 5% annually. We are optimistic that Indonesia can go back to its normality of growth in 2023 when Covid-19 is no longer the main issue, hopefully. For sure, Indonesia is on the right path of recovery as scar in 2020 provided 2021 with a momentum to grow. Shortly after the good news of the full year growth in 2021, Indonesia is facing the 3rd wave of Covid-19 in Feb-22. However, Indonesia has already won the battle against previous wave of Covid-19 and we believe Indonesia will win again this time with better response from the previous experience. Thus, we are optimistic that the economic recovery will be bolder in 2022 by having 4.92% YoY of economic growth with probability the growth will be higher.