[ad_1]
JAKARTA: Indonesia’s economy grew at its weakest pace since 2001 in the first quarter as the coronavirus pandemic halted business activity in the largest economy in Southeast Asia and fueled expectations of an impending recession.
The coronavirus crisis has affected consumption, the main driver of the economy, investment and vital exports of basic products, although the growth rate of Indonesia was even higher than that of some countries in the region.
Ad
Gross domestic product in January-March expanded 2.97 percent slower than expected from the previous year, the weakest pace since the first quarter of 2001, statistics office data showed, and was down 4.97 percent. from the previous quarter.
A Reuters poll had an average forecast of 4.04 percent, but some analysts had expected much weaker growth.
Indonesia’s main stock index cut gains to rise 0.25 percent in the mid-day recess, after rising as much as 1.4 percent earlier. The rupee appreciated slightly to 15,030 per dollar.
READ: COVID-19: Indonesia Calls for ‘Equal Access’ to Medicine for Developing Countries
Ad
The economy held relatively better in the first quarter because Indonesia blocked parts of the country later, said Capital Economic Asia senior economist Gareth Leather, who sees a sharp contraction in the second quarter.
“The blockade will have to remain in place for a longer time. Failure to contain the virus would have significant implications for the economic outlook,” Leather said.
The world’s fourth most populous country first detected coronavirus cases in early March and began closing schools and offices at the end of the month to stem its rapid spread.
It has reported 11,587 infections and 864 deaths, although authorities expect Indonesians to resume normal activities in July.
READ: Global COVID-19 deaths exceed quarter of a million
Bank of America economist Mohamed Faiz Nagutha said Indonesia could enter its first technical recession since the Asian financial crisis in the second quarter.
He said first-quarter data would likely show a contraction when seasonally adjusted and forecast a nearly 5 percent drop quarter-over-quarter in April-June.
Permata Bank economist Josua Pardede sees a recession for the third quarter if Indonesia extends its partial blockades and the government stimulus does not work fast enough.
Finance Minister Sri Mulyani Indrawati has pointed to a risk of recession and an annual GDP contraction of 0.4%, but said authorities were working to prevent it.
MORE CUTTING FEES
Economists say the data indicates the need to further lower interest rates.
Jakarta-based Standard Chartered and Bank Danamon predict cuts of 50 basis points in total for the rest of the year.
The Bank of Indonesia has lowered rates six times since 2019 and has injected money into the financial system, while the government has expanded its fiscal deficit to the highest in more than a decade to finance spending on health care, welfare and stimulus.
Airlangga Hartarto, Indonesia’s chief minister for economic affairs, said the government was maintaining its annual growth target of 2.3 percent by 2020.
“There is a shock on the demand side, especially in the second quarter when the government decided on large-scale social restrictions to reduce the spread of COVID-19,” he said in an online conference.
In January-March, household consumption, which accounts for more than half of GDP, recorded growth of just 2.84 percent, compared to around 5 percent in recent quarters.
Investment and exports also weakened, growing 1.7 percent and 0.24 percent, respectively.
Hartarto said Indonesia’s COVID-19 working group was preparing an “exit strategy” to allow factories to operate under stricter health protocols so that some companies can restart production.
The statistics office said Indonesia’s unemployment rate had barely changed in February from the previous year, but job announcements indicate a general decline in hiring.
CHECK THIS: Our comprehensive coverage of the coronavirus outbreak and its developments
Download our app or subscribe to our Telegram channel for the latest updates on the coronavirus outbreak: https://cna.asia/telegram
