Indonesia sees first recession in over two decades on Covid-19 hit

JAKARTA (BLOOMBERG) – Indonesia’s economy contracted again in the third quarter, falling into its first recession since the Asian financial crisis more than two decades ago as the country grapples with the coronavirus pandemic.

Gross domestic product shrank 3.49 per cent from a year ago, the statistics office announced on Thursday (Nov 5), worse than the 3.2 per cent contraction expected in a Bloomberg survey of 27 economists. That comes after GDP declined by 5.32 per cent in the second quarter.

Still, officials saw hope in the fact that the contraction was narrowing. Compared to the previous quarter, GDP expanded 5.05 per cent in the three months through September, while economists expected 5.55 per cent growth.

“This shows improvement, and the direction is getting more positive,” said the head of the statistics bureau, Suhariyanto, who goes by just one name. “We hope that the fourth-quarter situation will be even better with the easing of large-scale social restrictions.”

Indonesian stocks were up 2 per cent after the announcement, climbing to their highest level in nearly two months. The rupiah appreciated 0.98 per cent against the US dollar, marking its third straight day of gains.

The government has cut its economic forecasts several times and now expects GDP to contract between 0.6 per cent and 1.7 per cent for the full year. The tightening of social restrictions in Jakarta amid a fresh surge in virus cases has slowed the recovery.

Domestic demand, the mainstay of Indonesia’s economy, has yet to revive, with core inflation continuing to weaken since March. The country has recorded trade surpluses in recent months as exports improve, but a recent purchasing managers index showed manufacturing continues to struggle.

“The recovery should continue over the coming months, but it is likely to be slow and fitful,” Gareth Leather, senior Asia economist at Capital Economics, said in a research note after the data. “Fiscal and monetary policy is also likely to remain supportive.”

Bank Indonesia sees room to lower interest rates further and maintain accommodative monetary policy through 2021. The central bank has cut rates by 100 basis points this year and kept interest rates on hold in its last three meetings.

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President Joko Widodo has ordered government ministers to accelerate budget spending for the rest of the year and start planning project procurements to expedite spending early in 2021. The president recently signed a controversial law that aims to attract investment and create jobs, but labour unions are challenging the law at the Constitutional Court.

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