The COVID-19 pandemic sent the world into disarray. Most of the leading economies fell into recession; others experienced contractions not seen in decades. But how did Indonesia fare? What impact did the pandemic have on the economy, businesses, and the Rupiah?
What impact did COVID have on the economy?
The pandemic had a huge impact on the economy of Indonesia. Lockdowns caused businesses to close, and the tourism and hospitality sectors were severely affected. The country entered its first recession in 20 years, and the GDP contracted sharply. That said, some areas did experience positive growth. The digital economy received a much-needed boost. Taxation on digital services helped the state, and many businesses sought to recoup losses online. Many staff switched to remote working, services and products evolved, and there were various success stories across the sector.
Business owners worked hard to get to grips with digitization and also to increase their financial literacy. During the months of the pandemic, many business owners and entrepreneurs started engaging in forex trading to benefit from increased volatility, increased growth, and improve their own understanding of how the markets work. Naturally, this didn’t mean they were immune from risk, which is always something to consider. Regardless, this knowledge led to them making smarter decisions within their own businesses during a complex time. The markets are showing signs of recovery after this volatile period which many will continue to monitor.
How the Rupiah has performed in the last 12 months
2020 saw the Rupiah weaken significantly. In fact, it was billed as Asia’s worst-performing currency due to concerns over how the government was managing the crisis. Issues with state deficit and “debt burden-sharing” also caused the currency to plunge compared to pretty much every other currency out there. With Indonesia holding the position as the second-largest economy in Southeast Asia, a fallout was felt by others in the region. But towards the end of 2020, things started to look up. The Rupiah started to recover some of its strength.
It’s not been smooth sailing over the last six months, but things are moving in a general upwards trajectory. At the time of writing, the Rupiah was at 2019 levels, heading towards the highs it experienced in 2018.
The future
The future of Indonesia’s economy is somewhat unknown. The emergence of new strains of COVID is expected to impact the speed of the country’s recovery. Indonesian politicians set growth targets between 4.5% and 5.3% by year’s end, but seven months into the year, it’s not clear if these will be reached. The presence of new variants in the country could result in tighter measures or restrictions on those who can enter the country. This will impact tourism and other sectors that depend on the presence of foreigners.
But despite these looming uncertainties, there has been growth. Moody’s said there was 7.9% growth up to June and that this signified an inching towards positive annual growth. Whether things continue in this vein will depend on the management of the crisis and subsequent waves and the role out of vaccinations.
So, where does this leave businesses and investors? Businesses should seek to adapt to digitalization and the opportunities it brings. As for investors, there are plenty of opportunities to invest in the digital sector and to trade the Rupiah wisely, based on its current performance and projected slow but stable upwards trajectory.
