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S&P cuts Indonesia GDP growth f'cast, warns of pressure on credit conditions

Credit: REUTERS/WILLY KURNIAWAN

Indonesia's growing COVID-19 outbreak is adding downside pressures on the country's economy and credit conditions, S&P Global Ratings said on Thursday, as it cut its 2021 growth forecast for Southeast Asia's biggest economy.

JAKARTA, July 15 (Reuters) - Indonesia's growing COVID-19 outbreak is adding downside pressures on the country's economy and credit conditions, S&P Global Ratings said on Thursday, as it cut its 2021 growth forecast for Southeast Asia's biggest economy.

Indonesia is battling one of Asia's worst coronavirus outbreaks, with Thursday's tally of more than 56,000 infections the latest of many peaks in the past month.

The country has imposed its toughest mobility curbs so far during the pandemic and authorities are assessing whether to extend them after they expire on July 20.

"A COVID-19 resurgence is exacerbating downside pressures for Indonesia's economy and credit conditions," S&P said in a report.

"Existing credit buffers on ratings will be chipped away if ongoing lockdowns are prolonged."

S&P expected the country's fiscal deficit to be at 6% of GDP this year, wider than the government's target of 5.7%, due to pressure on revenues.

The ratings agency has a negative outlook for its long-term BBB investment grade credit rating for Indonesia. The negative outlook was given to Indonesia in April of 2020, which indicated rising financial risks as the country ramped up government spending at the beginning of the pandemic.

Fitch Ratings and Moody's give Indonesia a similar level of investment grade ratings, but on a stable outlook.

S&P also cut its 2021 economic growth forecast for Indonesia to 3.4% from 4.4%, predicting current movement curbs may be lifted in a month, and provided a lower forecast of 2.3% growth "under a more onerous set of assumptions".

This compared with the government's forecast of 3.7% to 4.5% economic growth in 2021. Indonesia's economy shrank 2.1% last year, the first contraction since 1998, due to the fallout of the pandemic.

S&P also said a delayed economic recovery will drag on revenue for Indonesian banks and most corporate sectors, highlighting retail, cyclical transportation and tourism as potentially being hurt the most.

(Reporting by Gayatri Suroyo Editing by Ed Davies)

((gayatri.suroyo@thomsonreuters.com; +622129927609; Reuters Messaging: gayatri.suroyo.thomsonreuters.com@reuters.net))

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