Moody's Investor Service predicted the economic growth of Indonesia will be below 5 percent until 2021 - Photo by Liputan6

JAKARTA (TheInsiderStories) – Moody’s Investor Service predicted the economic growth of Indonesia will be below 5 percent until 2021. This year, the country’ gross domestic product (GDP) is expected to grow by only 4.9 percent, lower than the government’ target of 5.3 percent.

The growth will further decline to 4.7 percent in 2020 and slightly recover to 4.8 percent in 2021. Moody’s managing director and chief credit officer Michael Taylor said, the country’ weak commodity prices will hit the economy and globally it could not be separated from the effect of the trade war between the United States (US) – China, as well as other trading partners.

“The trade war provides a lot of uncertainty about trade policy in the future and it effect on the growth and we’ve seen some decline in commodity prices and as a result, slower economic growth and that has had a knock-on effect in terms of Indonesia’s economy,” Taylor said in Jakarta on Wednesday (12/04) as quoted by local media.

Therefore, Moody’s predicts the growth for G20 countries will only be at 2.6 percent in 2019 and 2020. The group that represents 85 percent of global GDP then grow slightly to 2.8 percent in 2021, Taylor revealed.

The trade war, he continued, also suppressed China’ economic growth. In the second quarter of 2019, the second largest economy’ growth only 6.2 percent, the lowest for 27 years. Moody’s estimated China can maintain the growth at that level until the end of the year. While for next year, the growth to be increasingly sluggish at 5.8 percent.

“As far as trade and manufactured products businesspeople are concerned, we’ve seen a very clear impact this year because of the trade tensions. That is something that we think is dragging down global growth,” he stated.

Despite facing a slower growth scenario, Taylor said Indonesia was expected to see no changes in its credit rating. Moody’s upgraded Indonesia’s sovereign rating to Baa2 with a stable outlook on April 13, 2018. The rating, which is one notch higher than investment-grade rating, was granted on the back of a credible and effective policy framework to support macroeconomic stability.

“If you compare Indonesia to its rated peer group, it still looks pretty well-positioned for this rating. We don’t see upward or downward pressure in Indonesia’s credit rating at the moment,” said the economist.

In the third quarter (3Q) of 2019, the country’ GDP growth stood at 5.02 percent, down from 5.05 percent in the 2Q of 2019, as the investment and exports plunged while household spending stagnated, Statistics Indonesia data revealed.

The decline in commodity prices correlated closely to the banking sector, making it one of the key risks to Indonesian banks, adds by Moody’s analyst Tengfu Li.

“While commodity prices have recovered somewhat, the level of loan-at-risks is still elevated if you compare it to its peak in 2016. We are sort of watching this space closely because if the commodity cycle turns again, it will have a material impact on the banking sector,” Li said.

The GDP slowdown as well as weak commodity prices — especially for palm oil and coal — will also affect the earnings of many corporates, said Moody’s vice president and senior credit officer, Jacintha Poh.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com