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Asia Pacific’s economy next year will still struggle to recover from the recession. Behind the pandemic, business trends and business directions have changed. The business sector that was left behind before, is now advancing at the forefront.
The coronavirus pandemic has not only claimed millions of human lives and the outbreak of a worldwide recession, it has also completely changed the landscape and economic fabric. Some investment and business sectors have found increasing momentum amid efforts to vaccinate against the coronavirus and economic recovery.
The global economy has actually been depressed since 2019 due to the escalating trade war between the United States (US)-China and the heating up of US trade relations with the European Union, Japan and South Korea. As a result, the World Bank cut its forecasts for global economic growth in 2019, 2020, and 2021, by 0.2% each.
The Covid-19 Pandemic Triggering an Economic Recession
The Covid-19 pandemic that has occurred since the beginning of 2020 has made the situation even worse, triggering an economic recession in the majority of countries around the world. The Indonesian economy officially entered a recession in the third quarter and is estimated to continue until the end of this year. Social restrictions and lockdowns in many countries have also disrupted supply chains, production and world demand. Investment and global trade volume also fell significantly.
With the number of positive cases and deaths due to Covid-19 continuing to increase until the end of 2020, hopes for economic recovery next year rely heavily on the effectiveness of handling the pandemic. So far, not many countries have been able to control the spread of the virus. One of them is China. The panda country's economy recovered quickly: from contracting 6.8% in the first quarter of 2020 and then growing in the next two quarters, namely 3.2% and 4.9% in the third quarter.
China is also believed to be leading the direction of global economic recovery. Meanwhile, other countries are facing a second wave of virus transmission at the end of this year. Hopes for the economic recovery next year rest on some positive news regarding the discovery and start of the coronavirus vaccination. The Organization for Economic Cooperation and Development (OECD) calls vaccine development a glimmer of hope for a brighter future. The worst has been avoided and most of the economy has survived and can recover quickly.
Global Investment Map Change
Changes in the Global Investment Map Along with various restrictive policies to lockdowns, global investment has also fallen. According to the Investment Trends Monitor report released by the United Nations Conference on Trade and Development (UNCTAD), global foreign direct investment (FDI) in the first half of 2020 fell 49% on an annual basis or year on year. The decline in global FDI was due to slowing investment in existing projects.
The economic recession has also prompted companies around the world to evaluate their investment plans in new projects. Based on its location, investment flows to developed countries fell by 75% year on year in the first semester to US$ 98 billion. Meanwhile, FDI flows to developing countries fell by only 16% in the same period.
Meanwhile, FDI inflows to Asian countries only fell by 12%, helped by strong investment from China. In the first semester, FDI flowing to Asian countries contributed more than half of global FDI. On the other hand, investment in the form of cross-border mergers and acquisitions during the third quarter of this year has reached US$ 319 billion. Mergers and acquisitions in developed countries fell by 21%, but the decline would have been deeper had it not been for activities in the digital industry.
The World Investment Report (WIR), UNCTAD estimates that the pandemic will cause global investment this year to fall by 40% on an annual basis compared to the position in 2019 which reached US $ 1.54 trillion. This means that total global FDI will be below US$ 1 trillion for the first time since 2005. Meanwhile, in 2021 FDI is estimated to fall between 5-10%. Only in 2022, there is a possibility of FDI returning to pre-Covid-19 levels but in the scenario of the highest optimism.
The outlook for the future is still very uncertain. The outlook still depends on the duration of the health crisis, and the effectiveness of countries' policies to cushion the economic impact of the pandemic. According to the report, sectors that are increasingly being looked at during this pandemic are sectors related to sustainable development goals (SDGs) aka sustainable economy.
Of the 10 sectors in the SDGs, six of them enjoyed a significant surge in investment. The six sectors are infrastructure, climate change mitigation, agriculture, health, telecommunications, and ecosystems and biodiversity.
Bright Prospects for Indonesian and Asia Pacific Investment
Bright Prospects for Indonesian Investment So what about Indonesia? According to data from the Investment Coordinating Board (BKPM), Indonesia's investment realization until the third quarter of this year has increased again, after falling quite deeply since the discovery of the first case of Covid-19 in March.
Total investment realization until the third quarter of this year reached IDN 611.6 trillion, up 1.7% on an annual basis from IDN 601.3 trillion in the same period in 2019, mainly driven by domestic investment (PMDN).
However, the third quarter of foreign investment (PMA) still fell by 5.1% to IDN 301.7 trillion from IDN 317.8 trillion in the same period 2019. On the other hand, investment domestic capital (PMDN) rose 9.3 percent to IDN 309.9 trillion from IDN 283.5 trillion. The trend of foreign investment in the third quarter increased in the basic metal, metal goods, non-machinery and equipment industrial sectors. Meanwhile, the sectors of choice for domestic investors include the transportation, warehouse, and telecommunications sectors.
This is a positive signal that foreign investors are starting to believe in the policies carried out by the Indonesian government," he said in a written statement some time ago. After the relatively fast recovery, the prospects for investment in Indonesia in 2021 are also quite bright, according to JP Morgan's report entitled "Make Indonesia Great Again". Head of Indonesia Research & Strategy JP Morgan predicts that FDI flows to Indonesia in 2021 will reach a record high. The main factor driving foreign investment inflows into Indonesia, namely the enactment of the Omnibus Law on Job Creation in October 2020, whose derivative rules will be issued in February 2021. The Omnibus Law on Job Creation will be the biggest policy reform in the country since 1998. In addition to the Omnibus Law factor, the election of Joe Biden will also increase investment in Indonesia.
