COVID slammed Indonesia’s economy hard in 2020, data shows

Indonesia’s GDP shrank by more than expected in the fourth quarter, leading to its first full-year contraction since 1998.

Indonesia's policy of vaccinating economically active people ahead of others is likely to see behaviour returning to normal, Capital Economics says [Dimas Ardian/Bloomberg]
Indonesia's policy of vaccinating economically active people ahead of others is likely to see behaviour returning to normal, Capital Economics says [Dimas Ardian/Bloomberg]

Indonesia’s gross domestic product (GDP) fell slightly more than expected in the fourth quarter, tipping Southeast Asia’s largest economy into its first full-year contraction in more than 20 years in 2020 as it grappled with the hit from the COVID-19 pandemic.

GDP shrank by 2.19 percent in October-December compared with the same period a year earlier, data released by the statistics bureau on Friday showed. That was worse than the 2 percent contraction expected in a poll of economists carried out by the Reuters news agency, but improving from the 3.49 percent slump in the previous quarter.

Indonesia’s main stock index erased its earlier gain after the data was released, having traded up as much as 0.7 percent before the announcement.

The Indonesian economy fell into recession last year as it struggled to get its COVID-19 outbreak under control. The country has the highest caseload and death toll from the respiratory disease in Southeast Asia.

For 2020 as a whole, GDP fell 2.07 percent from a year earlier, the first full-year contraction since the 1998 Asian financial crisis. That was slightly larger than the 2 percent contraction in the Reuters poll, and roughly in the middle of the government’s forecast range for a 1.7-2.2 percent fall. GDP grew by 5 percent in the full year of 2019.

[Bloomberg]
Indonesia has struggled to find a clear path out of recession, as looser curbs on movement during much of the fourth quarter hastened the virus’s spread yet failed to spur private consumption. COVID-19 infections and deaths continued to rise by record numbers in January, prompting more stringent anti-virus measures and raising doubts about whether Indonesia could return to growth this quarter.

Household and government spending lag

Household consumption, which makes up more than half of Indonesia’s GDP, fell by 3.6 percent year-on-year in the fourth quarter, moderating from the 4.1 percent drop in the previous quarter, while investment remained sluggish with a 6.2 percent fall.

Government spending was up just 1.8 percent, considerably slower than the previous quarter’s 9.8 percent growth.

But some analysts say Indonesia’s vaccination programme should help it to start the recovery process.

“Unlike the rest of the world, the government is prioritising vaccinating the economically active population first. As fear of being infected falls, people’s behaviour is also likely to start to return to normal,” Gareth Leather, senior Asia economist at research firm Capital Economics, said in a note sent to Al Jazeera.

Capital Economics is forecasting a 7.5 percent growth rate for 2021, leaving it about 4 percent below its pre-crisis trend, it said.

Both the central bank and the government have sought to soften the blow from the pandemic.

Bank Indonesia, which cut interest rates by 1.25 percentage points last year and pumped $50bn of liquidity into financial markets, has pledged to use all policy instruments to support the economic recovery in 2021.

Finance Minister Sri Mulyani Indrawati said this week she would boost fiscal support for the economy in 2021 to nearly match the 692.5 trillion rupiah ($49.39bn) the government allocated for pandemic relief programmes last year.

Source: Al Jazeera and news agencies

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