Indonesia’s economy shrinks for the first time since the aftermath of the 1997 crisis.
Economic growth shrinks 5.32% in Q2
JAKARTA: Indonesia’s economy contracted for the first time since the aftermath of the Asian financial crisis more than two decades ago, as movement restrictions to contain the coronavirus outbreak took a toll on Southeast Asia’s largest economy.
Gross domestic product declined 5.32% in the second quarter from a year ago, data from the statistics bureau showed yesterday, its deepest contraction since the first three months of 1999.
The median estimate in a Bloomberg survey of economists was for a 4.72% slump. GDP fell 4.19% compared to the previous quarter, worse than the 3.65% drop expected.
“You know a blow is coming and you’ve been bracing yourself for it, but when it comes it’s still going to hurt — a lot,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp in Singapore. “While we still see a recovery in the second half, the path is made all the more uncertain by global developments.”
Indonesia’s benchmark stock index closed 1% higher, rebounding from a 0.3% drop after the data release. The yield on benchmark 10-year government bonds dropped two basis points to 6.821%, while the rupiah rose 0.5% against the US dollar.
Retail sales in the consumptionreliant economy have taken a knock amid the pandemic, while manufacturing continues to contract, as the latest purchasing managers index shows. Indonesia’s exports, dominated by commodities such as coal and palm oil, have shown some improvement in recent months.
The government has lowered its growth forecasts several times already and now sees GDP in a range of -0.4% to 1% for the year. The central bank has cut its own estimate to 0.9%-1.9% growth.
President Joko Widodo has said the economy is showing signs of recovery, with household consumption, purchasing power and money circulation in rural areas rebounding recently.
However, the country’s virus outbreak — the worst in Southeast Asia — shows no signs of abating and could weigh on that outlook.
The sharp contraction in Indonesia’s economy in the second quarter is likely to have been the low-point. Even so, declines in third and fourth quarters cannot be ruled out, as Covid19 restrictions in some form will need to remain in place until a remedy is widely available.
Whether Indonesia can re-open substantially further and return to positive growth by the fourth quarter would hinge on fatalities remaining relatively low.
In a separate briefing, Coordinating Minister for Economic Affairs Airlangga Hartarto noted recent improvement in the PMI, car sales and retail sales as harbingers of revival.
“We believe the economy starts showing a reversal from its bottom in the second quarter,” he said.
Josua Pardede, an economist at Bank Permata, said the data showed a rising risk of recession and called on the government to boost its fiscal support.
The government has disbursed only 141 trillion rupiah ($9.7 billion), or 20% of the 695.2 trillion rupiah it has allocated for stimulus.
“Steps to stimulate the economy through accelerating the stimulus of government spending is crucial, by continuing to encourage productivity, which has a multiplier effect on public demand and consumption,” Pardede said. “Economic performance in the third quarter of 2020 is expected to be a turning point.”
Bank Indonesia has cut interest rates by 100 basis points this year and agreed to finance the widening budget deficit by buying billions of dollars of sovereign bonds directly from the government.
Wisnu Wardana, an economist at Bank Danamon Indonesia, said he didn’t see scope for much more central bank easing.
“We are of the view that monetary policy has been stretched, especially under the recent burden-sharing scheme,” he said.