gfc macroinsight 16 china gdp 14 february 2020 12 % yoy
TRANSCRIPT
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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
+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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