Research Briefing | Sep 30, 2021

Indonesia | Recovering demand to power credit growth in 2022

Ipad Frame (69)

Private bank credit contracted 2.7% in 2020 in Indonesia and continued to decline on a year-on-year basis through most of H1 this year. The credit crunch has occurred despite a 150bps reduction in the policy rate since the onset of the pandemic and a liquidity injection of around 4.5% of GDP by Bank Indonesia.
What you will learn:

  • Lending conditions are easing in Indonesia, but demand weakness continues to hold back credit growth. As the economy continues to recover, we expect credit demand to rise, which should feed GDP growth in 2022-2023. Monetary policy is likely to remain accommodative next year, and we forecast private credit will grow 12.6% over 2022-2023 on average.
  • Early signs that credit is recovering include the pick-up in the pace of consumer lending in recent months. And considering corporate liabilities and household debt are relatively low at less than 20% of GDP, we see plenty of space for more credit growth.
  • But the credit outlook is not without risks. Consumer sentiment will likely be volatile in the near term given the uncertainty over the path of the pandemic. And despite generally low private debt levels, some sectors may find their capacity to take on loans constrained by their low debt service capacities.
Back to Resource Hub

Related Services

Post

Why an ageing population doesn’t mean soaring inflation

What’s the future for inflation? Joachim Nagel, the new president of Germany's central bank, believes the rapidly ageing global population will play a key role – ramping up pressure on prices in the medium term. While we agree slowing labour supply will stifle output growth, in his recent discussion Nagel failed to fully consider the demand side of the argument.

Find Out More

Post

Surging global food prices could drive eurozone core inflation higher

Along with energy prices, global food prices have emerged as a key driver of the eurozone's current inflationary surge. Like other advanced economies, eurozone countries tend to be less exposed to global food price fluctuations. But if persistent and combined with strong demand, high food prices could result in a higher pass-through to core inflation.

Find Out More