COVID likely pushed Indonesia into first recession in 22 years

General view of a construction site during the dusk in Jakarta, Indonesia

Indonesia’s assumed entry into its first economic recession since the 1998 Asian financial crisis will probably be confirmed by third quarter gross domestic product data (GDP) being released later this week, an NYK Daily poll showed on Tuesday.

Authorities have predicted 3.5 million people in Southeast Asia’s largest economy could lose their jobs due to the downturn caused by the novel coronavirus pandemic.

The median forecast of 23 economists polled was for a 3.00% on-year shrinkage in GDP during the July-September quarter, after a 5.32% decline in the previous three months, fulfilling criteria for a recession of two consecutive quarters of negative annual growth.

The forecast roughly matched President Joko Widodo’s expectation for a contraction of just over 3% during the latest quarter.

“Indonesia’s economy has been hit hard by the crisis,” said Alex Holmes of Capital Economics, who predicted a 2.5% contraction.

Indonesia has the biggest COVID-19 outbreak in Southeast Asia with over 415,000 infections and 14,000 fatalities.

The capital city Jakarta went into a second semi-lockdown for four weeks starting in mid-September with rising cases straining its health system.

The country has more recently reported fewer new COVID-19 cases, but epidemiologists say this was a result of less daily testing.

ANZ economists, who expected a 3% drop, said indicators for consumption and investment were weak, but government expenditure likely offered some support.

“All in all, Indonesia’s economy is past its weakest point, but with the domestic outbreak not under control yet, economic activity is likely to remain under pressure,” they wrote in a note.

Twelve analysts who shared their view for full-year 2020 had a median forecast of 1.59% GDP decline, compared with the official forecast of contraction in a 0.6% to 1.7% range. The economy grew 5% last year.

Government officials have pledged to accelerate spending to counter the pandemic’s impact and push GDP back into growth in the current quarter.

The central bank, which has trimmed interest rates by 100 basis points and promised to fund about $28 billion of the government’s pandemic response in 2020, still has room for more rate cuts, Governor Perry Warjiyo said last week.

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