Indonesia’s GDP contracts 0.7% in Q1

Indonesia saw its economy slightly contracted by 0.74% year-on-year in the first three months of 2021, which signals its continuing recovery as the government raises fiscal support and inoculates more people against COVID-19.

This is the fourth straight quarter that the country posted a contraction in its gross domestic product (GDP) since restrictions mounted against the coronavirus pandemic hampered economic activities last year.

The latest GDP figure improved from the 2.19% decline reported in the final quarter of 2020, the Jakarta Post reported on May 5, citing data from Statistics Indonesia (BPS).

“It remains negative but far better than the previous quarters, showing that the economic recovery trend is unfolding as expected,” BPS chief statistician Suhariyanto was quoted as saying in a press briefing.

In a comment, Capital Economics senior economist Gareth Leather said: “Indonesia’s economy struggled to gain any momentum in the first quarter of the year and a failure to contain the virus will hold back the recovery in the quarters ahead.”

“A spate of natural calamities and a spike in COVID-19 infections at the start of the year scuttled hopes for a strong pick-up in economic activity, prompting authorities to allocate more funds to fiscal stimulus to bolster the recovery,” ING senior economist Nicholas Mapa said in a note.

Indonesia has set aside Rp 699.43 trillion (around $48.4 billion) under its National Economic Recovery program to stimulate its economy.

The country also bets on its COVID-19 immunization drive to further open its economy. More than 20 million already took their first jabs in early May, representing 4.9% of the population, according to the Financial Times tracker.

“As more and more citizens receive their vaccines, we can expect consumer demand to recover somewhat to help drive a rebound in GDP in the second half of the year,” Mapa said.

Household consumption, which primarily drives the Indonesian economy, slowed down by 2.23%, though an improvement from 3.61% in Q4 2020. Fixed asset investments shrank by 0.23%, which is better than 6.15% from the previous quarter.

Mapa also pointed out that the domestic demand remained “soft” as shown by “disappointing” retail sales, which crashed by 17.1% as of March, and “subdued” core inflation which averaged 1.4% in the year.

State expenditure, meanwhile, expanded by 2.96%, increasing from the 1.76% growth recorded in October-December. The government had spent Rp 132.07 trillion (around $9.49 billion), as of late.

Trade also showed growth with exports climbing by 6.74% and imports rising by 5.27%, mainly driven by Chinese demand for Indonesian products.

Further, Bank Indonesia noted that “most economic sectors are seeing improvements, led by Information and Communication, Water Supply as well as Health Services.”

“Domestic economic recovery momentum is building on the back of rapid external sector gains in response to the stronger global economic recovery and ongoing acceleration of fiscal stimuli,” the country’s central bank said in a statement.

Officials kept their official GDP growth estimate between 4.3-5.3%, while the Indonesian central bank recently slashed its forecast to 4.1-5.1%.

“We continue to expect better growth numbers from Indonesia with prospects for faster growth tied largely to the vaccination efforts,” ING’s Mapa said.

“The potent mix of fiscal and monetary stimulus alongside the vaccination rollout should translate to an overall improving growth outlook in the coming quarters,” he added.

“An orderly vaccination program rollout and disciplined application of Covid-19 protocols are still required to accelerate the recent domestic demand gains,” Bank Indonesia said, while it vows to strengthen policy coordination with the government, including the implementation of the Integrated Policy Package to support ongoing national economic recovery.

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