Chasing the Expected Growth would be Harder Now
Weekly Notes :
Indonesia’s economic recession eventually ended in 2Q21. The economy grew +3.31% QoQ/+7.07% YoY in the last quarter. The positive figure was in line with consensus expectation although the actual number was slightly higher.
The 2Q21 Growth Drivers
We see domestic economy expanded to the highest pace since 4Q04 partly due tow low based effect. Meanwhile global recovery trend to continue to facilitated the global trade which boosted both exports and imports. Domestic consumption, government spending and investment also played a role driving growth. Surprisingly all sectors including transportation and services recorded a positive growth. This was attributable to improving public mobility in the second quarter.
Eye on Macro Data Release
Since the PPKM Darurat and currently named as PPKM Level 4 takes a place, the outlook for 3Q21 is deteriorating. Markit Manufacturing PMI contracted to 40.1 marking the first contraction in the last 9 months and the steepest pace since June-20. Although CPI jumped +0.08% MoM/+1.52% YoY, inflationary pressure remained below central bank’s target. We believe this trend will continue in the rest of 2021. Indonesia FX reserves grew to USD137.3bn in July-21 supported by government global bond issuance and tax receipts. Consumer Confidence Index (CCI) will be released next week and we expect the optimism in 2Q21 will likely to fall pressing further domestic economic recovery.
Is it the Time for the Fed to Taper Off?
The Fed statement recently has made it clear that U.S. economy made a substantial progress towards recovery. This has opened the potential debate on how central bank should respond. Curbing the stimulus package under QE is likely to take effect by the end of this year according market expectation. Currently 10 year U.S. treasury yield and USD index remained in a multi-year low. However persistent higher inflation and strong job market seemed to justify if continue making tapering off option justified. Delta variant widespread still posing a downside risk to the economy, thus once again policy makers facing a big threat and challenge at the same time.
Facing Another Hard Time
Chasing the expected growth would be harder now in our view, with Covid-19 infection to stay haunting domestic economy. The external pressure come with the expectation on the Fed to pullback the stimulus to the U.S. economy by the end of this year.
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