Glimmer of Hope Now Dimmed: Bank Indonesia Governor

Jakarta. A steep drop in the global oil price and a jump in the number of people infected with the Covid-19 disease outside China on Monday had wiped away the glimmer of hope that a global economic slump could still be avoided this year, Bank Indonesia Governor Perry Warjiyo said. 

"In early February, there was actually a glimmer of hope," Perry told reporters on the sidelines of a meeting with the Manpower Ministry and the Professional Certification National Agency in Jakarta on Monday. 

He said the first stage of new trade negotiations between the United States and China had reduced uncertainties around the world and increased the prospect of a global economic recovery.

"But then [that glimmer of hope] dimmed with the emergence of the coronavirus," Perry said.

"Now the coronavirus outbreak is spreading to many countries, the United States, Japan, France. And this morning we were struck by an oil war that has made the price of oil fall from around $60 per barrel to $30 per barrel," he said. 

The US West Texas Intermediate (WTI) crude futures tanked 29 percent to $30.7 per barrel at 6 a.m. London time on Monday, its lowest level since 2016, triggered by a price war between key oil producers Russia and Saudi Arabia. 

Oil price this year has declined more than 51 percent since its year-high of $63.3 on Jan. 6.  

Saudi Arabia decided to go on an all-out price war with Russia after the Middle Eastern country and its allies in the Organization of the Petroleum Exporting Countries (OPEC) failed to reach a production cut agreement with the world's third-largest oil producer in a meeting last weekend.

Many now fear the drop in the price of oil would exacerbate the drop in global demand and trade – already limping from the Covid-19 outbreak. 

The number of people infected by SARS-CoV-2, the deadly virus that first emerged in the Chinese city of Wuhan and causes the Covid-19 disease, has now exceeded 110,000 people around the world.

While China has seen a decline in new Covid-19 cases – showing the effectiveness of the country's containment measures – other countries like Italy, the United States, Japan and France are beginning to see the number of infected people picking up. 

Indonesia reported six confirmed cases in the past seven days, and health authorities are still waiting for the test results of 23 more suspected victims. 

Perry said Bank Indonesia would wait for its March 18-19 meetings before announcing the central bank's policy response against the latest development in the outbreak. 

Tamara Henderson, a Bloomberg economist for Asean, said the region's largest economies were up for a fierce headwind from the coronavirus outbreak and oil shocks. 

"Even if China, the US and Europe are able to engineer V-shaped recoveries with relatively quick and sharp rebounds, we expect growth in Asean's five largest economies to slow to 3.3 percent on average from 3.7 percent in 2019, down 0.7 [percent] from our forecast before the virus struck China," Henderson said in an emailed statement on Monday.  

"A more prolonged slowdown for China that extends into [the second quarter], a larger number of key economies suffering severe outbreaks or sustained financial market turbulence could push Asean growth down to 2.5 percent," she said. 

"All three factors together would be much worse. In contrast, our pre-virus forecasts envisioned a 0.5 [percent] pickup in Asean growth this year," she said.