Looking beyond COVID-19: Towards Indonesia Growth Aspirations
In a webinar hosted by PT Bank HSBC Indonesia, Ali Setiawan, Managing Director - Head of Markets and Securities Services PT Bank HSBC Indonesia, shared the impact of the pandemic and current status of Asian markets.
The report noted that Asia is among the least impacted from the latest wave of COVID-19, although not by a comfortable margin.
“It seems Asia has done really well in containing and dealing with the recent situation, especially when compared to the US and Europe,” Ali Setiawan said during the webinar
In his opening remarks, HSBC Indonesia President Director Francois de Maricourt, said that “the global COVID-19 pandemic has compelled individuals, companies and governments, to rethink their strategies and growth forecast. Indonesia too has been impacted by the pandemic, in terms of health and economy. As some companies had to close operations and millions of Indonesians lost their jobs.”
“Industries such as F&B, retail, real estate and finance, will have to formulate new work and business models to take into account this so called ‘new normal’ and even after the pandemic, we expect that ‘work from home’ will remain in one way or another. Although industries such as manufacturing logistic healthcare education will have to create more health conscious and conducive work environments so their businesses can operate safely,” Francois added.
Ill prepared for a pandemic, Europe saw its peak number of deaths from April to June, and the lowest number of cases around the same time. The numbers dwindled as the wave subsided from August to September, but regained momentum as the pandemic entered its second wave in early October.
On a per capita basis, most of Asia is far less affected, with China, Thailand and Taiwan leading with the least amount of cumulative cases per million populations. On the other end of the spectrum is Brazil and the United States, and Singapore, with the highest number of cases per capita.
In discussion regarding the much covered US election, Ernest Bower IV, President and CEO of Bower Group Asia commented on the current climate in US politics. “The mood in Washington is a mix of existential relief on one side but ongoing anxiety on how we get to the next step. Joe Biden and Kamala Harris won this election; they will take over the presidency in January,” Ernest said.
“There’s a relatively unified front at the surface, generally trying to avoid answering tough questions about the president and the transition, behind the scenes everybody knows he lost the election, he’s got to go,” Ernest said referring to Trump’s refusal to concede the election. “I think the real risk is in the transition is Trump’s refusal to cooperate with the transition, and that has a huge impact on national security,” he added.
“Indonesia’s going through a very hard time with the pandemic, like we are in the United States, but the President has essentially been ignoring the pandemic as we reach a quarter of a million people dead in the United States due to COVID, behind the scenes leading Republicans are working hard to try and encourage the president to do the right thing and make this transition,” Ernest said.
The pandemic wrought havoc in economic activities across ASEAN, the impact is most significant in tourism and the disruption in air travels, and the loss of confidence among businesses and consumers. “In the second quarter we can see that activities have dropped quite a lot for a number of industries, including the automotive industries, where some sales have dropped by 90 percent,” Ali said.
According to an ASEAN Policy Report published in April, at the beginning of the pandemic, many countries, including those in Asia, did not anticipate the subsequent impact and underestimated the outcome. The IMF initially stated the impact would be limited, around 0.1 point off their 3.3 percent 2020 growth forecast for the global economy. After a month from that initial statement, the IMF announced deep cuts in its growth forecasts for 2020. The Asian Development Bank, through the growth projections in its latest ADO report, gave an indication of the magnitude of the impact, evident in the difference between the new numbers and the forecasts made last year prior to the outbreak. ADB reduced its forecast for Developing Asia by 3.0 points to 2.2 percent, and for ASEAN by 3.7 points to 1.0 percent.
It is hard to overstate the impact of COVID-19 on the economy, especially regarding employment, or lack thereof. Unemployment rates made a huge leap in the Philippines, due in part to the severe lockdown, with Indonesia placing second, and Thailand placing last, being the least impacted. Additionally, the HSBC report also stated that manufacturing-related employment is likely to continue to shrink. “In consumer sectors, we can see that medium incomes earners are not spending as much as before, keeping their money in savings accounts and its quite obvious why most of book 3 and Book 4 banks are flush with IDR liquidity. At the same time though the lower income earners are suffering because majority of them are informal workers and they are starting to loose jobs. Before the end of the second quarter during Idul Fitri time they can still rely on their savings from last severance payment etc but since then they have been struggling to get jobs or to earn income for their families,” Ali explained during his presentation.
Within ASEAN, even before the outbreak, foreign investments have already started to taper off due to heightened risks from trade tensions. Investment fell sharply amid lockdowns, but Thailand again showed resilience toward the impact, while investments contracted across the board in the second quarter. Uncertainties brought about by the pandemic also triggered a swift outflow of capital, causing a dive in the markets and a rapid depreciation of the exchange rates across the region earlier in the year.
Regarding Indonesia and ASEAN in general, panelist Steven Okun, Senior Advisor for McLarty and Associates Singapore, elaborated on foreign relations between Indonesia and the United States following the US transition into Joe Biden’s presidency. “Two things to keep in mind, there is going to be this integrated approach to foreign policy, there’s going to be direct relationships with the CDC” Steven said. “There is going to be a lot of opportunity for Indonesia to work directly with experts, and there’s going to be a lot opportunity to get investments into Indonesia through the US International Development Finance Corporation,” he added.
Concluding the webinar, Commercial Banking Director for HSBC Indonesia Eri Budiono said that HSBC are pivoting towards Asia and increasing investments in the region. “We [HSBC] have an unparalleled ability to connect Asia to the rest of the world. We are excited that Asia is leading the economic recovery and encouraged to see 15 nations in Asia Pacific signed the largest trade deal RECP over the weekend a step in the right direction for economic integration in the region,” he said.
“Indonesia is a key part of ASEAN which represents our key geographical strategy alongside China and India. We continue to grow our franchise here and invest in digital technology to support our clients as they are fast tracking their digital transformation journey,” Eri added.
The COVID-19 pandemic has led to over 58 million confirmed cases and more than a million fatalities worldwide. In addition to the disease’s mortality and public health effects, it may lead to significant and lasting economic implications, but if individuals work together to suppress the virus and protect each other by following by wearing masks and maintaining social distancing, and governments employ serious measures to curb the pandemic, then perhaps there is still hope that we can find a way out.