The COVID-19 pandemic has negatively impacted Indonesia’s GDP growth for 2020 and 2021, much like the rest of the world. Consumer spending, industrial production, and investment dipped significantly, resulting in a -2.0% YOY contraction in economic activity during the first three quarters of 2020. We do not expect the Indonesian economy to reach pre-COVID economic levels before 2022; however, the economy is expected to continue recovering through next year.
The government will continue to prioritize economic stability over mounting healthcare risks, resulting in a gradual recovery in consumer and business confidence levels. Companies should segment their customers and prioritize selling to those who are expected to recover faster as domestic economic activity resumes. Executives should also ensure their local teams are equipped to sell through digital channels, as high infection rates will likely continue to limit in-person meetings.
The Indonesian economy will be slow to recover to pre-COVID levels. The Indonesian economy is expected to continue recovering gradually in 2021. The recovery will be driven by increases in major economic drivers, including consumer spending, industrial production, and investments.
Retail spending is expected to recover gradually in the coming months. B2C companies will likely experience demand pressure as retail sales continue to contract; however, a gradual improvement in consumer confidence levels and an increase in the government’s fiscal support for consumers will allow for a recovery in spending levels in 2021.
The government will likely continue implementing major business reforms over the coming quarters. The Jokowi administration is committed to implementing key business reforms even amid the global pandemic. The government passed the omnibus bill on job creation in October 2020, which will likely boost Indonesia’s business environment.
Actions for Businesses Operating in Indonesia
- Though unlikely, a significant increase in fatality rates may result in extended, large-scale lockdowns. Ensure your distributors and logistics providers are equipped to continue operating in such a scenario.
- Encourage your distributors to build inventory while the Indonesian rupiah is relatively strong. If you have a manufacturing facility in Indonesia, ensure you have a contingency plan for how to deal with a major COVID-19 outbreak in your city, district, or industrial zone.
- Segment your customers and prioritize selling to companies catering to the domestic market, as exports are expected to remain under pressure in the coming few quarters.
- Prepare for increased demand for maintenance services and minor product upgrades as companies cut investments on new machinery as a result of a weak lending environment.
- Consider introducing new pricing packages as companies attempt to convert their CAPEX into OPEX in order to avoid significant one-time investments.
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