(ATF) Indonesia – Southeast Asia’s biggest economy – will be propelled by consumption in the months ahead in a boost that will raise corporate revenues and reduce leverage, according to Fitch Ratings.
“The economic recovery in 2021 for Indonesia will be driven by consumer spending. And for the specific sectors we believe that the recovery will benefit the sectors that were among the hardest hit,” Olly Prayudi, the head of Indonesia corporates for Fitch in Jakarta, said in an interview with Asia Times Financial Television.
Indonesia’s economy contracted for the first time since the 1998 Asian financial crisis, shrinking just over 2% after growing 5% in 2019. As the country struggled with the highest death and infection rate in the region, it also fell into recession for the first time in over two decades.
In the current year its economy has now a 5% growth target.
The rating agency expects increased spending by the nation’s 270 million population to support a 10% rise in aggregate revenue for Indonesian corporates in 2021, a rebound from last year’s decline of 8%. It has forecast a reduction in median leverage to 2.9 times from 3.3.
Prayudi expects the recovery will benefit sectors like automobiles and property, which were among the hardest hit last year.
“This is because we expect consumers to resume their non-discretionary spending, and start to becoming more optimistic about the long-term view. We believe that demand in 2021 for the property sector will be supported by affordable houses which are generally priced below 1.5 billion Rupiah ($105,000) and which are very popular among the first homebuyers,” he said.
Economists are betting on a vaccine pivot as the government aims to inoculate over 180 million people within 2021.
Household consumption, which represents more than half of Indonesia’s GDP, shrank 3.6% in Q4 with the contraction slowing from 4.1% in the third quarter as the government began easing restrictions.
Bank Indonesia, which delivered 125 basis points of rate cuts last year and pumped $50 billion of liquidity into financial markets, has pledged to use all policy instruments to support the economic recovery in 2021. Last month, it lowered its key policy rates for the sixth time since the Covid-19 pandemic started; the benchmark 7-day reverse repurchase rate is currently at 3.5%, the lowest since it began using the instrument as its benchmark in 2016.
“On top of the interest rate cut that the central bank has made, the government has been supporting the economy with various stimulus,” said Prayudi, referring to relaxations to loan-to-value requirements and tax incentives for the property and automobile sectors.
“We believe that will support the demand in both auto and property sectors because the tax cut generally translates into lower prices for buyers.”
Indonesia, which also has the biggest internet economy in the region, would continue to witness speedy growth in online transactions, Prayudi said.
“Indonesia has the necessary prerequisites for further growth, namely the rising middle class, who are also active Internet users,” he said.
Indonesia’s digital economy expanded by 11% last year to $44 billion and this is now projected to churn out a total of $124 billion in gross merchandise value in the years up to 2025.