"Improvement in the global economy itself will be lower than the previous projections," the minister noted at the KSSK Press Conference here on Wednesday.
Sri Mulyani explained that improvement in the global economy will be lower as compared to the earlier projections accompanied by increased financial market volatility in line with the escalation of the war between the two countries.
Earlier, positive expectations for the global economic recovery in line with the easing of COVID-19 became restrained or came under pressure due to escalation of the war in Ukraine since February 24, 2022.
The imposition of sanctions by the United States, Europe, and G7 countries against Russia in the midst of ongoing supply chain disruptions had also depressed the trade volume and prospects for global economic growth.
The war also triggered a very significant increase in global commodity prices, especially energy, food, and metal commodities and resulted in an increase in global inflation.
The war between Russia and Ukraine also creates challenges for the normalization of the monetary policy in developed countries that then raises uncertainty in global financial markets.
Capital flows in emerging markets were also depressed due to the monetary policies of developed countries in response to the surge in inflation, which at the same time was still facing the potential for an economic downturn.
"This is in line with the asset reallocation step to find a safe haven asset," she stated.
On the other hand, Sri Mulyani emphasized that the stability of the Indonesian financial system was still normal, indicated by stable economic recovery, especially supported by the better handling of COVID-19.
The decline in cases and good handling of COVID-19, followed by the easing of restrictions on community activities, in the end further encouraged domestic economic activities.
Indonesia's economic growth is also forecast to remain strong, supported by public or household consumption activities, investment activities, and support for government spending.
However, Sri Mulyani did not deny that there were several other risks from global conditions that would likely affect inflation, cost of funds, and domestic economic performance.
Hence, the KSSK will continue to strengthen coordination, including in formulating policy responses that are coordinated and synergized in maintaining national economic recovery from global turmoil and dynamics.
"The KSSK remains vigilant and monitors financial system stability in order to maintain it," the minister noted.
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Translator: Katriana
Editor: Sri Haryati
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