The global demand for oil has increased, partly caused by pent-up demand during the pandemic, amid the decline in the world’s oil supply due to stagnant investment and the transition to renewable energy.
By
ARI KUNCORO
·5 minutes read
The year has just turned over, but a number of uncertainties have already begun to appear. The main concern is the emergence of the new coronavirus variant, Omicron, which has spread to a number of countries, including developed countries.
The International Monetary Fund (IMF) has recently cut its global economic growth forecast. The global growth forecast for 2022 is more pessimistic at 4.4 percent, lower than the Fund’s estimate of 4.9 percent in October 2021. The global growth forecast for 2023 is an estimated 3.8 percent, or 0.2 percentage points higher than the original forecast. These growth forecasts do not take into account other uncertainties, such as the world's bumpy energy transition towards renewable sources that has led to an increase in energy prices.
The global demand for oil has increased, partly caused by pent-up demand during the pandemic, amid the decline in the world’s oil supply due to stagnant investment and the transition to renewable energy. As a result, the West Texas Intermediate (WTI) crude oil prices recently shot up to US$90 per barrel for the first time since 2014.
Lessons from Q4 growth
Statistics Indonesia (BPS) released growth data for the fourth quarter of 2021 on 7 Feb. 2022. The dynamics in public expectations resulted in annual growth of respectively 3.51 and 5.02 percent in the third and fourth quarters of 2021. Growth remained positive as the consumer confidence index (CCI) and the manufacturing purchasing managers index (PMI) returned to the optimistic zone in September 2021.
The CCI fell drastically to 80.2 in July 2021 from 107.4 the previous month, a decline of 25.3 percent.
In fact, July-August 2021 saw a surge in new Covid-19 cases. As of 15 July 2021, the recorded number of new daily cases was 56,757, Indonesia’s highest figure. A month earlier on 15 June, the number of new daily cases was just 8,340. This indicated that the caseload increased 575.7 percent in a single month. The CCI fell drastically to 80.2 in July 2021 from 107.4 the previous month, a decline of 25.3 percent.
Tightening the public activity restrictions (PPKM) caused a reversal in expectations. Between September and October 2021, the CCI rose sharply from 95.5 (pessimistic zone) to 113.4 (optimistic zone). Until December 2021, household expenditure was still on the rise. This can be seen from the decline in the income-to-savings ratio in November and December from 14.6 to 14.1 percent.
Some portion of savings was used to pay an increased installment rate and for leisure activities (relaxation, new experiences, self-actualization) after prolonged confined due to the pandemic.
KOMPAS/RADITYA HELABUMI
High-rise buildings, especially for offices, continue to grow in Jakarta.
BPS community mobility data derived from Google showed that mobility in trade, retail and recreation surpassed pre-pandemic levels by 4.4 percent. Meanwhile, shopping outlets for daily necessities recorded visitor mobility of 24.6 percent. Mobility in parks for activities such as cycling and running, which had become part of the new lifestyle, exceeded pre-pandemic levels by 2.3 percent.
The mobility categories that remained below pre-pandemic levels were transportation venues (minus 19.4 percent) and offices (minus 13.1 percent). There seemed to be a shift towards using private vehicles on weekends, while employees continued to work from home (WFH).
Lasti Kurnia
Wiwin Umbara, brand activation manager for a private company, has an online meeting with team members while working from home (WFH) in self-isolation at his home in the Kebun Jeruk area, Jakarta, Friday (27/3/2020).
Initially, the spread of the more infectious Omicron variant only impacted CCI, which showed a decline in December 2021 as people began to be more conservative in purchasing durable goods. Between November and December 2021, the durable goods purchase index fell from 93 to 91.9.
The lesson to be learned is that health and economic indicators show similar movement (co-movement). This condition resulted in annual growth of 5.02 percent in the fourth quarter of 2021, supported by annual consumption growth of 4.81 percent, well above 1.03 percent growth in the previous quarter.
The growth data in the fourth quarter of 2021 gives hope that the economic growth momentum can be maintained.
On 4 Feb. 2022, Indonesia recorded 32,211 new daily cases of Covid-19, a drastic increase from 404 cases on 5 Jan. 2022, or a 7,873 percent month-to-month increase. Its impact on economic growth will only become visible in first-quarter figures for 2022. It is possible that the growth pattern will fluctuate due to changing public expectations. The growth data in the fourth quarter of 2021 gives hope that the economic growth momentum can be maintained.
An important factor in building societal expectations is the mildness of the Omicron variant. Several studies, for example from the Kaiser Permanente Health System at the University of California, Berkeley, confirmed previous studies conducted by the United Kingdom Health Security Agency that Omicron is not as severe as previous variants, but it is more contagious and presents a high risk for people with comorbidities.
These studies managed to reverse expectations on the world oil market because the positive balance for global economic recovery outweighs the risks.
As a policy consideration, the phrase “less severe but more contagious” gives reason to be optimistic, but with high vigilance. This distinguishes the current wave of Covid-19 from the previous one, in that it can affect public expectations as regards both CCI and PMI towards a more positive direction. The PPKM policies are flexible to accommodate changing expectations.
Adapting the PPKM levels or individual restrictions, such as venue capacity, WFH percentage, dining hours, face-to-face meetings, should be done either sequentially/conditionally or partial unbundling to maintain the growth momentum.
KOMPAS/HERU SRI KUMORO
Ari Kuncoro
ARI KUNCOROis the rector of the University of Indonesia
(This article was translated by Hendarsyah Tarmizi).
