Indonesia: In pandemic firefighting mode


Indonesia is facing a sharp rise in Covid cases, pressurising public health facilities.
Radhika Rao09 Jul 2021
  • Indonesia is facing a sharp rise in Covid cases, pressurising public health facilities
  • Stricter movement restrictions have been imposed to break transmission
  • Impact is beginning to show in high frequency data
  • Vaccination rate needs a leg up to achieve a critical mass
  • Govt has cut growth forecasts; we flag downside risks to our already sub-consensus estimate
Photo credit: Unsplash


Pandemic – bracing for impact

Indonesia is facing a strong resurgence in Covid cases, with the daily count at a fresh high of over 34,000 cases, more than double the previous peak in early-Feb21. Total cases have risen past 2.3mn, adding ~200k in the past week.



Jakarta accounted for a third of the national count; the most populous Java island made up two-thirds. The fatality rate (as a % of total) is low, but the pace of daily deaths has doubled vs the early 2021 wave. The more transmissible variant, Delta, is believed to be responsible for the re-steepening in the pandemic curve.



The sharp increase in the caseload is pressurising existing public health facilities, with the bed occupancy rate (BOR) for isolation patients in hospitals across the Java island in the 80-96% range, well in excess of the World Health Organisation’s threshold of 60%. The BOR varies across provinces, with Banten facing the highest rate, followed by DKI Jakarta (92.3%), Southeast Sulawesi (92%), West Java (89.6%) etc., according to thelocal media.



The government dialled up localised restrictions earlier this month, with emergency public activity restrictions (PPKM Darurat) imposed on the Java island and Bali for a start until Jul 20, which has since been expanded to the entire country. Regions have been classified into four zones, guided by intensity of the Covid transmission. These stringent restrictions are likely to extend into August until the daily case count peaks and begins to correct down.

Stricter guidelines include closure of malls, dining in was ceased, schools as well as public facilities have been shut. Movements will be dictated by whether occupations fall under the non-essential, essential, or critical sectors, with the latter allowed to work from office (energy, health, logistics, utilities etc.). Essential services will continue with 50% capacity whilst non-essential will shift to full work from home.

Prevailing testing ratios remain lower than most ASEAN counterparts, which is necessary to capture the true picture of the community spread at this juncture, to enable the track, trace, and isolate framework.

Economic bite begins to show

Tightened localised restrictions are beginning to take an economic bite, with Google discretionary and non-discretionary mobility indicators easing mildly from June’s highs (see chart). With a broadening in the PPKM Darurat rules, these are likely to slide further, withofficialssignalling that while historically a 30% fall was sufficient to reduce cases, but the onset of the more transmissible variant might require ~50% fall in mobility to effectively break the transmission chain.





Monthly indicators will be released with a lag, with the slump in June PMI-manufacturing pointing to worry over the order pipeline, demand visibility as well as higher input prices. The data heatmap above provides an overview on the momentum in recent months. Consumption as well as investment interests are likely to come under a cloud under the new restrictions, particularly impacting the vulnerable informal sector, weighing on savings, employment, and income levels.

Growth trajectory faces risks

The government’s 2021 growth projection was lowered to 3.7-4.5% vs 4.5-5.3% previously, with public sector spending and exports seen as key thrusts whilst consumption remains under weather due to the pandemic waves.

A multi-country study by the OECD (March report) earlier this year shows that containment measures and fall in mobility are impacting growth to a smaller extent than the early stages of the pandemic last year, as businesses and residents have increasingly learned to adapt to restrictions and quasi-lockdowns. While this is likely to prevent economic activity from contracting sharply in midst of the ongoing movement restrictions, duration and severity of the pandemic curve will also factor into the extent of economic impact, which will be most evident in the 3Q sequential growth, where a deeper contraction is on the cards.

Bloomberg consensus expectation for Indonesia’s growth has been moderating, catching down with our conservative 2021 GDP growth forecast at 4% (30-50bps downside risks are emerging). Recovery hiccups and tepid inflation implies policy normalisation plans will remain on ice this year. On the fiscal end, even as the government seeks to maintain an expansionary bias, we don’t expect the -5.7% of GDP deficit target to be missed. Instead, rationalisation in existing spending heads are likely, for instance IDR26.2trn from the state spending and IDR6trn of regional transfers is said to be channelled into Covid support measures. Between Jan-Jun21, the fiscal deficit is well under control, totaling 1.7% of GDP. 2022 deficit is also likely to hover at the higher end of the indicative 4.5-4.85% of GDP.



Counting on vaccine rollout

Encouragingly, the daily rollout of vaccines has jumped by 3x in the final week of June vs late-May and continues to average 700k into July. This improvement partly reflects the benefit from a shift in the procurement/ dispensation strategy, for instance allowing residents to now approach any clinic to receive vaccines regardless of domicile address etc. Onset of the fresh wave is likely to expedite demand, whilst supply continues to be ramped up. To reach a critical mass, the government intends to cover 181.5mn people by March 2022.



As of July 7, about 50mn have received doses, of which 34mn have received one and 14mn are fully vaccinated (5% of the population). With respect to the procurement pipeline, the government has placed firm orders for 330mn doses (104mn have been received by Jun21, a mix of bulk, overfill and ready-to-use versions), with an additional option for 334mn and potential supplies of 664mn, constituting of China’s Sinovac, Novovac, supplies under Covax facility and Astrazeneca. Apart from the public sector rollout, the private sector initiative ‘Gotong Royong’ is also underway, with allocation of 20mn doses. When the latest wave ebbs, authorities will be cautious and guarded in reopening until vaccination achieves critical mass, which is necessary to build resilience against further outbreaks as well as return to a durable recovery path.

To read the full report, click here to Download the PDF.

Radhika Rao

Economist – India, Indonesia, Thailand & Eurozone
radhikarao@dbs.com


Subscribe here to receive our economics & macro strategy materials.
To unsubscribe, please click here.

The information herein is published by DBS Bank Ltd (the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation.  Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. 

DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-878-9999. Company Registration No. 196800306E. 

DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability.  18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.


The information set out in this website ("Information") is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. This Information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation. This Information is published for general circulation only and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. Visitors accessing this website should always seek advice from an independent financial adviser regarding the suitability of the Information referred to herein (taking into account the specific investment objectives, financial situation and/or particular needs of each person in receipt of the Information) before making any investment and/or any purchase in reliance of the Information. Please refer to the actual research publications for important disclaimers and disclosures, where applicable.