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The Inevitable Divergence: Part 2


Concerns over Indonesia’s positive economic sentiment have surfaced following the latest announcement from the International Monetary Fund (IMF). Based on the January 2023 edition of the IMF World Economic Outlook, global growth is forecasted to decelerate from 3.4% in 2022 to 2.9% in 2023. Amidst the fear, IMF’s Chief Economist Pierre-Oliver Gourinchas pointed out that this will only be a minor issue since the economy is expected to rebound in the upcoming year – in line with global resilience strengthening. Additionally, the Chief Economist added that the general concern about the potential recession will not likely be critical, as the attention is still set on Russia’s war in Ukraine alongside the global fight against inflation. Although the IMF's view in regards to the global recession does not come transcribed as threatening, Indonesia has reacted cautiously and taken the safe steps needed to ensure stability. Through structural transformation, assurance in the sturdy Indonesian economy is backed up with a comprehensive policy mix – accelerating economic recovery through pro-stability. On the other side, many investors are still in doubt about the capital market climate and prospective sectors in the country. According to the Executive Director of Morgan Stanley Indonesia, the advantageous sectors are consumer retail and media. The aggregate view of the capital market is considerably good, while individually does not seem as performing. Therefore a thorough evaluation must be carried out to gain foreign investors’ trust in obtaining a substantial amount of investment incomes. Nevertheless, while positive outcomes are being put out, Indonesian authorities are still vigilant to any disruptions.


Corresponding to many nations worldwide, Indonesia has been subject to the ramifications of widespread economic uncertainty. Regardless of the nation’s promising state, its immunity is still questionable. This has raised queries about its potential to weather any probable global recession. In response, the Indonesian government has taken proactive steps to mitigate the impact of this instability. The Coordinating Minister for the Economy, Airlangga Hartarto, has emphasized adopting a balanced approach to diversification. In his opening speech at The Indonesia Economy Outlook 2023 seminar, Hartarto cited the success of the country’s response to the COVID-19 pandemic as a valuable lesson in the power of great synergy. President Joko Widodo has also provided clear direction for the national economy to remain resilient in facing these challenges. He has implemented a comprehensive policy mix to stimulate economic recovery between the fiscal, monetary, and natural sectors. The focus is on maintaining people’s purchasing power, increasing exports and investment, and expanding downstream and green energy. The monetary policy will support economic recovery with a broad mix of pro-stability measures. At the same time, Bank Indonesia will work to maintain inflation stability alongside a strong and stable Rupiah exchange rate through solid economic fundamentals. Indonesia is poised to preserve its economic resilience and become a bright spot in Asia. Nonetheless, this success depends on the efforts of all stakeholders. Despite fluctuating conditions, the capital market landscape in Indonesia has remained positive, with investors showing a willingness to stay the course. This positive trend results from the government’s proactive approach to addressing the challenges posed by the global economic climate and provides a basis for confidence in the future of the Indonesian economy.


The current macroeconomic climate may be challenging to rely on foreign investors in hopes of driving the Indonesian stock market in 2023. In light of this, investors must be cautious and avoid sectors heavily dependent on exports, given the economic slowdown affecting significant countries globally. Furthermore, investors should focus on examining the fundamental background of these stocks, as some sectors that were affected in 2022 still carry the risk of further decline. Nonetheless, controlling the COVID-19 pandemic, with Indonesia moving towards an endemic phase, creates a sign of an optimistic measure. The estimated Indonesia GDP growth is to be between 4.5% to 5.3% – relatively higher compared to other developing countries. Investors are also optimistic, considering the rise in the Fed's interest rate, the controllability of the COVID-19 pandemic, and the projected GDP growth. Despite that, they must be wary of the negatives – the temporary quantitative easing of interest rates, the dominance of a risk-off over a risk-on appetite, tightening liquidity by central banks, decreased attractiveness of other capital markets, privacy infringement issues, and decreased investment due to failures in the crypto market. Moreover, the global recession is causing a fall in export demands in Indonesia, leading to a moderation in growth and excessive production, resulting in mass job losses. To navigate through, investors in Indonesia should focus on sectors driven by domestic demand. An important theme in 2023 is the preparation for the political campaign leading up to the 2024 Election, which can indirectly boost public spending in the retail sector. This presents a unique investment opportunity to capitalize on the growth potential of the retail sector. All things considered, investment opportunities are still available for those willing to take a closer look at the underlying trends and fundamentals of the market.


Sources:

Bank Indonesia

CNBC Indonesia

International Monetary Fund


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