Sustained price dip to shock Indonesia's macro stability

Commodity prices falling to 17-27% in May is bad news.

According to Morgan Stanley, key commodity prices have fallen 17-27% from recent peaks due to persistent weakness in the developed world and a simultaneous slowdown in the emerging economies.

"However, this commodity linkage is a double-edged sword. Price levels that are either too high or too low are not ideal. With key commodity prices down 17-27% from recent peaks and current account deficit already in negative territory, we think commodity prices have reached a level where a further 15-20% decline in commodity prices could disturb macro stability and pose major risks to GDP growth to the tune of 0.5-1.0ppt," Morgan Stanley further noted.

"Although the structural story does not go away, risks of a commodity price-related shock to macro stability means that Indonesia would need to undertake policy adjustments to ensure structural growth drivers are up to speed to offset the growth negatives and sustain growth rates."

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