Indonesia’s economy would return to expansion mode in Q1

8 February, 2021 12:00 AM printer

JAKARTA: The government is confident Indonesia’s economy would return to an expansion mode in the first quarter this year, banking on the government spending increase, manufacturing growth, and exports, after a persistent rise of the Covid-19 cases prevent the country from escaping its first recession in 22 years last year.

The Central Statistics Agency (BPS) announced on Friday that Indonesia’s economy shrunk by 2.07 percent in 2020, compared to a 5 percent expansion in 2019. The largest economy in Southeast Asia declined by 2.2 percent in the fourth quarter from the same quarter a year earlier, report agencies.

That was the third straight quarter Indonesia’s economy stayed in the negative territory, placing it in a first recession since the 1998 Asian Financial Crisis.

Still, the 2020’s slump was not as severe as many predicted. For example, the World Bank expected Indonesia’s economy to drop by 2.8 percent in its flagship report “Global Economic Prospects” last month. 

That, coupled with a narrowing contraction in manufacturing and consumer spending, has lent confidence to the government that Indonesia’s economy would recover in the first quarter of this year.

“The government targets an economic growth of between 4.5 percent to 5.5 percent this year,” Coordinating Minister of Economic Affairs Airlangga Hartarto said on Friday.

“Of course, we hope that there will be a positive growth in the first quarter, of between 1.6 percent to 2.1 percent,” Airlangga said.

The government hoped household consumption, which accounts for 55 percent of the economy, would recover soon, as well exports fueled by demand from China, the only world’s economy that managed to expand amid the pandemic.

Household consumption decline narrowed to 3.6 percent year on year, compared to a 5.5 percent slump in the second and 4 percent drop in the third quarter. Export has also recovered slightly, posting a 7.7 percent drop compared to 11.7 percent decline in the third quarter.

This year, the government set aside close to Rp 149 trillion for social safety net programs, including cash transfer for the poor to prop up the consumer’s demand, up from Rp 125 trillion last year, Airlangga said.

The government would also revamp its Covid-19 program to better track, trace, and isolate cases to reign in the pandemic.

The country only managed to traceless than 2 close contacts for each positive Covid-19 cases eleven months into the pandemic. President Joko “Jokowi” Widodo has issued a new direction to Covid-19 Task Force, which Airlangga headed to track at least 30 close contacts for each positive case.