A boy plays with his kite at West Flood Canal's embankment in Jakarta on Tuesday. (SP Photo/Joanito de Saojoao)

Indonesia Is Unlikely to Escape Recession: Finance Minister


SEPTEMBER 23, 2020

Jakarta. The Finance Ministry has cut Indonesia's economic growth projection for this year to between -1.7 percent and -0.6 percent from between -1.1 percent to 0.2 percent as the country's failure to contain the Covid-19 spread making it unlikely for the largest economy in Southeast Asia to escape recession. 

The ministry said the economy would contract by 2.9 to 1.1 percent in the June to September period, following a 5.3 percent contraction in the previous three-month period. Economist defines a recession as contractions in two consecutive quarters. 


"The negative economic growth is likely to occur in the third quarter and maybe still ongoing in the fourth," Finance Minister Sri Mulyani Indrawati said on Tuesday.

Indonesia set three record numbers of new Covid-19 cases in the past week and already registered more than 250,000 patients since the pandemic arrived in the country in March. Jakarta, the country's current pandemic epicentrum, reimposed stricter social restrictions last week in a desperate attempt to contain the disease. 

The minister said some signs of improvement have begun to appear, despite not as strong as it expected previously.   

The contraction in the household consumption would likely narrow to between 3 percent and 1.5 percent in the third quarter, from 5.6 percent decline in the second quarter, Sri Mulyani said. Household consumption is the primary driver of Indonesia's growth, accounting for more than 50 percent of the economy.

"Investment is slightly better, but still weak. It is reflected in indicators of building activity, imports of capital goods and sales of commercial vehicles," she said.

Investment might contract by 8.5 percent to 6.5 percent in the third quarter and was likely to end the year 5.6 percent to 4.4 percent lower than last year, after adjusting to inflation, Sri Mulyani said. 

Export performance would remain under pressure and be likely down by 14 percent to 8.7 percent in the third quarter. Import would probably drop by 27 percent to 16 percent in the period, Sri Mulyani said. 

Fortunately, government spending had shown improvement and would likely increase by 9.8 percent to 17 percent in June to September period in line with acceleration in spending of the government's pandemic stimulus, she said. Government spending shrank 6.9 percent last quarter. 

"For the whole year, government consumption will increase by around 0.6 percent to 4.8 percent. The government has gone all out in its spending policies or fiscal expansion as a countercyclical measure," she said.

The global economy has also shown some improvement. The Organization for Economic Cooperation and Development (OECD) expected the global economy to contract by 4.5 percent this year, compared to between 6 percent and 7.6 percent contraction it projected in June. 

For 2021, Indonesia set an economic growth target of 4.5 percent to 5.5 percent.

"As Covid-19 remains the first factor affecting the economy at the global and national levels, we are reaching the target is still very much determined by our ability to control Covid-19," she said.