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Indonesia’s economic recession is likely to be worse than expected as Southeast Asia’s largest economy struggles to contain the coronavirus pandemic, says the International Monetary Fund (IMF).
Indonesia’s gross domestic product (GDP) is now expected to contract by 1.5 percent this year instead of the 0.3 percent contraction the IMF had projected in June.
The downward revision for Indonesia comes as the IMF has become less pessimistic about the world economy, according to the October update of the World Economic Outlook, released on Tuesday.
Indonesia’s economic status remains precarious due to the continued spread of the pandemic and the adverse impact on severely affected sectors such as tourism, the Washington-based institution said.
“All emerging market regions and developing economies are expected to contract this year, notably including emerging Asia, where large economies such as India and Indonesia continue to try to control the pandemic,” the IMF said in its report.
Indonesia has been struggling to contain the outbreak in the country, as COVID-19 cases reached 340,622 with more than 12,000 deaths as of Tuesday afternoon, official data shows. The country has been adding around 3,000 to 4,000 cases a day since September 19.
The IMF’s projection is largely in line with the government’s estimate of a full-year contraction from 0.6% to 1.7% in late September, below GDP growth of 5.02% in 2019.
Indonesia’s GDP shrank 5.32 percent year-on-year (on-year) in the second quarter due to falling household spending and investment, and economists and government officials project another contraction in the third quarter, marking a recession.
Meanwhile, the world economy is expected to contract 4.4 percent this year, a less severe contraction compared to the IMF’s previous estimate of 4.9 percent, due to better-than-second quarter GDP data. what was expected in countries where activity began to improve after blockages and signs of rapid recovery in the third quarter.
GDP figures could have been much weaker had it not been for the “sizeable, rapid and unprecedented” fiscal, monetary and regulatory responses that sustained household income, business cash flow and the provision of credit. according to IMF economic adviser Gita Gopinath.
“Together, these actions so far have prevented a repeat of the financial catastrophe of 2008 and 2009,” he said in the report. “While the world economy is coming back, the rise is likely to be long, uneven and uncertain.”
The pandemic will reverse the progress made since the 1990s in reducing global poverty and increase inequality, as the IMF expects nearly 90 million people to fall into poverty this year.
In Indonesia, the government has said it expects another 4 million Indonesians to fall into poverty and 5.5 million people lose their jobs during the coronavirus pandemic.
The IMF expects the world economy to recover and grow by 5.2 percent in 2021, while the Indonesian economy is expected to expand by 6.1 percent.
Although social distancing will continue in 2021, it may fade over time as vaccine coverage expands and fiscal support from governments expands, the IMF said.
However, risks to the global economy loomed, such as new outbreaks, the premature withdrawal of policy support, as well as liquidity shortages and insolvencies.
As countries reopened their economies, the IMF urged governments to support the recovery by facilitating the reallocation of workers and resources to sectors least affected by social distancing and by providing stimulus where needed.
“[Furthermore,] investing in health, education and infrastructure projects could help support the economy, ”he said. “In addition, as life lines are unwound, social spending must be expanded to protect the most vulnerable where there are gaps in the safety net.
The government’s efforts to contain the pandemic and extended fiscal support would help boost economic growth to 5 percent in 2021, the director of state budget policy for the Finance Ministry’s Fiscal Policy Agency, Ubaidi Socheh Hamidi, said on Tuesday. He added that a rise in commodity prices and accommodative fiscal and monetary policies would help boost the economy.
“With consistent government efforts, we expect 5 percent growth next year, despite the risks of a growing outbreak and the uncertainty surrounding [coronavirus] vaccines and the world economy, ”he said in a debate. “We expect a rebound next year, but we will be careful going forward.”
The government will prepare Rp 2.75 trillion (US $ 186.3 billion) in state spending to boost the virus-hit economy next year, with a large part of the spending going to infrastructure, education and healthcare.
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