This Is The Impact Of El Nino On The Indonesian Economy

JAKARTA - Drought and hot weather that have occurred in several areas in Indonesia recently caused by El Nino is feared to affect the Indonesian economy.

Bank Mandiri Chief Economist Andry Asmoro said El Nino, which is expected to occur until the end of this year, could affect domestic food production.

"Food demand is rebounding after the pandemic so this can cause pressure and average will affect the cost of input for farmers," said Andry, quoted on Wednesday, August 23.

However, since 2015 there has been a responsive import policy carried out by the government. Meanwhile, this year, the government imported rice with an estimated 2 million tons or grew 365 percent.

Referring to existing literature studies, he said every one degree Celsius temperature increase would reduce rice production by 5.7 percent. Thus, domestic rice production has the potential to decrease by 3 to 6 percent in 2023 if El Nino occurs.

However, according to him, when compared to the CPO which has an impact on GDP, el nino does not have a major impact on economic growth if it does not have an impact on inflation.

"We see that GDP is still in the range of 5.3 percent at the end of this year. Even if there is an impact, maybe only 10 bps from GDP," he continued.

On the same occasion Andry also revised Indonesia's inflation forecast which was originally estimated at 3.6 percent to 3 percent-3.2 percent at the end of 2023.

According to him, the inflation rate is a game changer that supports the growth and stability of the financial sector.

Andry said inflation was getting more under control even though the challenge of el nino could increase the potential for food supply disruptions.

Meanwhile, inflation until July was recorded at 3.08 percent yoy, and has returned to the Bank Indonesia target in the range of 2 to 4 percent.

Whereas previously, inflation in June 2023 had touched 3.52 percent.

"OurROWcasting shows that Indonesia's inflation rate can be in the range of 3 to 3.2 percent by the end of 2023 with a good food supply management strategy," concluded Andry.