This Year, The Global Economy Is Predicted To Be More Stable Than 2019

Illustration. (Photo: Unsplash)

JAKARTA - This year, the global economy is predicted to be more stable than 2019, which experienced a slowdown. Chief Economist & Investment Strategist of PT Manulife Aset Manajemen Indonesia Katarina Setiawan said there are several factors that will support this.

"For 2020, in our view, global economic growth will stabilize, supported by the easing of trade tensions between the United States and China, as well as monetary and fiscal policies that will remain accommodative," Katarina said in an official statement received by VOI, Friday, January 17.

Katarina said that economic data had begun to improve at the end of 2019, in which the leading economic indicators from the global manufacturing Purchasing Manager Index (PMI) showed a signal that they had reached their lowest point or bottoming at the end of last year. This data indicates the potential for improvement in the global manufacturing and trade sectors.

The IMF estimates that global trade activity has the potential to improve in 2020 with a growth of 3.2 percent, up from 1.1 percent in 2019. In addition, the improvement in trade tensions between the United States and China also led to an improvement in global business sentiment at the end of 2019.

"This is a positive thing because it can support investment activities from the private sector," said Katarina.

In addition, continued Katarina, in 2020 the global central bank will keep interest rates at an accommodative level. At a meeting in December the Fed gave a signal that interest rates will not rise unless there are significant changes in economic conditions.

Inflation is also expected to remain low due to structural factors such as the high global savings rate, globalization, income inequality and an aging population, thereby reducing the pressure on rising interest rates.

"Overall these factors have the potential to produce a more conducive climate for the global market in 2020," said Katarina.

Domestically, many factors hindered Indonesia's economy in 2019, such as weakening global trade activity, and from the domestic side we were also overshadowed by the election period which resulted in restrained investment activity. The government's performance was also affected due to the long distance between the election and the inauguration of the President.

For 2020, Katarina estimates that Indonesia's economic climate will gradually improve. Global conditions that are more conducive to encouraging investment in developing country markets will also benefit Indonesia.

"In addition, Indonesia's economy in 2020 will also have a positive effect from the reduction in Bank Indonesia's interest rates in 2019. The impact of lowering interest rates on the economy is usually not instantaneous and occurs gradually," said Katarina.

It is considered that Bank Indonesia still has room to lower interest rates. Indonesia's real interest rate is currently one of the highest among regional countries, leaving room for BI to further reduce interest rates.

However, it seems that BI is targeting to keep Indonesia's real interest rate higher than other countries in the region to maintain the attractiveness of Indonesia's assets. Therefore, future movements in interest rates will depend on trends in global and regional interest rates.

"What is clear is that BI's policy direction is expected to remain accommodative in 2020. So even though the interest rate does not drop much, BI can still relax macroprudential policies to boost credit growth," he said.

Katarina added that the main focus in 2020 is reforming government policies to attract foreign investment. The speed of execution of reformist policies such as the revision of the labor law, cutting corporate income taxes, simplifying regulations or the bureaucracy is expected to be the catalyst for the 2020 economy and financial market to encourage economic growth and increase competitiveness.