After the economic growth results were announced last week, Indonesia has entered a technical recession with a growth rate of -3.49 percent. However, this number has markedly improved compared to quarter two, when it stood at -5.32 percent.
In other words, the economy has already “bottomed out”, or an economic recovery has started from a low base. Quarter four is targeted to have GDP growth at 0 or -1.1 percent, which is an improvement going into 2021; the aim is to be back on positive growth territory.
This positive news has also been supported by the recent US elections. In the global market, some examples include DJIA (US) which rose by 2 percent and the FTSE (UK) rose by 4.5 percent on the first day of opening after the election. The Indonesian Rupiah was recorded to have strengthened 1.34 percent compared to the US Dollar and was about to break below Rp14,000.
What indications will affect our investment decisions by the end of 2020?
The second wave of COVID-19 is occurring in Europe, forcing several countries to have a second lockdown too prevent the overwhelming of health capacity. Furthermore, the US continues to set daily records for case numbers.
Joe Biden, as the president-elect, has many different directions compared to Trump, including dealing with a global pandemic as well as climate and environmental problems. An additional stimulus package is expected to be approved soon, even if it is smaller in number, so that:
- – USD will be widely circulated
- – Interest rates close to zero will cause funds to pull out of deposits and bonds
- – Stock spending, some have started recovery
- – After that, the funds will enter emerging markets, one of which is Indonesia
China continues to show economic recovery, even though there are still tensions with the US as the trade war continues. The stimulus in China has started to drive inflation, which means that the economy has started to recover.
The main topic is executing the implementation of the Omnibus Law regulations. As stated by a former minister who was once the head of BKPM in a webinar, foreign investors coming to Indonesia can only pray when dealing with licensing, which is often a complicated and long process.
This is President Jokowi’s challenge to overcome. Long-term capital investment is needed to create jobs. With the Omnibus Law and the revision from the US that Indonesia is a developing country, this should be an opportunity for the government to boost the relocation of companies that export their goods to the US, especially companies from China. This direct investment will provide multiple benefits, employment opportunities, and incoming funds for the long term.
The US stimulus will again drive up the stock exchange, as idle money looks for a place to generate wealth. The risk of a bubble is very large if the real estate sector cannot chase expectations from the capital market.
Indonesia is expected to experience a GDP contraction in Q4. If this happens, it’ll be a harder and longer recovery into 2021. Not only that, foreign funds entering the capital market will slow down. Overcoming the pandemic in Indonesia must be done in order to be able to encourage domestic consumption as the only driver of growth.
Interest Rates and the Value of the Indonesian Rupiah
The age of low-interest rates is expected to last a long time around the world, including for the Indonesian Rupiah. It’s time for the government, Bank Indonesia, and Financial Services Authority (OJK) to encourage banks to reduce deposit and loan interest rates.
Property as an investment asset, in the sense that its value in the long run doesn’t decrease and does not run out like consumer goods, will be pushed up because:
– Demand from end-users; they buy it themselves and will provide the best opportunity with cheap loan rates
– Investment will provide the best opportunity for diversification into property from cash or deposits as property prices are under pressure due to the pandemic, deposits will see declining interest rates, as well as basic macroeconomic conditions that will wait for the time to return to normal and rise.
The following year will have momentum for recovery, not only in Indonesia but throughout the world. Whether the recovery runs sooner or later, the euphoria of optimism will drive inflation, and property is one of the investment instruments worth considering at the end of 2020, or no later than Q1 of 2021.
Amazon’s share price has also fallen; it’s estimated that its turnover will be affected after the pandemic. Due to Pfizer’s announcement that the vaccine has reached 90 percent efficacy, players on the American stock exchange have begun to focus on the post-pandemic, causing shares of airlines and hotels to start to rise.
Recently, the developer Summarecon has succeeded in selling all the products issued in the city of Bogor, even more than three times the demand. This proves that the property market is starting to grow.