Indonesia Expects To Exit Recession in Second Quarter With GDP Seen Up Over 7%

Indonesia
FILE PHOTO: Indonesian national flags fly at a business district, following the coronavirus disease (COVID-19) outbreak, in Jakarta, Indonesia, February 5, 2021. REUTERS/Ajeng Dinar Ulfiana

JAKARTA ⸺ Indonesia’s economy is on course to emerge from a pandemic-induced recession in the second quarter, with gross domestic product seen growing by more than 7% from a year earlier, government officials said on Tuesday.

Southeast Asia’s largest economy suffered its first recession in over two decades last year, posting negative growth in each quarter from April-June 2020 as the country battled with one of the worst COVID-19 outbreaks in Asia. 

GDP contracted 2.1% in 2020 and the government sees a rebound this year to a growth range of 4.5% to 5.3%.

Based on February data, GDP was set to contract 1.0% to 0.1% year-on-year in the first quarter, an improvement from a 2.2% fourth-quarter contraction on rising consumption, Finance Minister Sri Mulyani Indrawati told a virtual briefing, adding a coronavirus vaccine rollout would also help the economy.

Fiscal policy office head, Febrio Kacaribu, said the economy hit its lowest point in the second quarter of 2020 so should show a significant improvement in the next quarter.

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“Our latest calculation shows growth can reach more than 7% year-on-year,” he told the same briefing.

DBS economist Radhika Rao said economic activity in the first quarter remained sluggish but should improve thereafter, aided by a “moderating (COVID-19) case count, a timely vaccination rollout, easy financial conditions and a commodity price upcycle”, even without further interest rate cuts. 

Bank Indonesia has cut rates by a cumulative 150 basis points since the start of the pandemic.

January-February state revenue rose 0.7% from a year ago, while spending increased 1.2%, with a tentative fiscal deficit of 0.36% of GDP, ministry data showed.

Tax revenue was down 4.8%, but a rise in value added tax payments last month signalled a recovery in consumption.

Indonesia has issued 271.4 trillion rupiah ($18.8 billion) of bonds, excluding buybacks and short-term treasury bills. The central bank has bought 73.88 trillion rupiah as a standby buyer during debt auctions. 

Sri Mulyani said the government will be vigilant about potential capital outflows amid global market volatility.

Fitch Ratings on Monday affirmed Indonesia’s credit ratings with a stable outlook, predicting GDP growth of 5.3% this year and 6% in 2022, while noting Indonesia was more vulnerable than many peers to shifts in investor confidence towards emerging markets.

($1 = 14,415.0000 rupiah)

Reporting by Gayatri Suroyo and Fransiska Nangoy; Editing by Ed Davies; Reuters

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