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Bloomberg

Indonesia is aiming for a V-shape recovery after disappointing GDP

(Bloomberg) – Indonesia is aiming for a sharp turnaround this quarter as it puts together additional stimulus programs to fuel persistently weak domestic demand. The gross domestic product fell in the first quarter compared to the previous year by 0.74%, announced the statistics office on Wednesday, worse than the mean estimate of -0.65% in a Bloomberg survey of economists. Still, it was an improvement on the 2.19% decline seen in the final quarter of 2020. Southeast Asia’s largest economy should grow again this quarter as the government prepares tax and sales measures to support the retail sector, Coordinating Minister for Economic Affairs Airlangga Hartarto said in a briefing. According to Bloomberg data, GDP is expected to grow 6.9% to 7.8% in the second quarter. This is the fastest pace since 2008: “The trend towards economic recovery is towards positive growth,” said Hartarto. “The curve is V-shaped, as seen in many other countries.” “Until we return consumer confidence, which will revive demand, the risk will be on the downside,” said Enrico Tanuwidjaja, an economist at PT Bank UOB Indonesia in Jakarta. He added that he would downgrade his full year outlook based on the first quarter numbers. The country’s benchmark index cut daily gains to 0.2% after the GDP data was released. The rupiah has barely changed at $ 14,435. “The virus resurgence earlier this year is likely to have weighed on consumption, although there have been some signs of an emerging recovery lately,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp in Singapore. “Bank Indonesia will most likely keep its policy rate unchanged and focus on conveying the banking system’s earlier rounds of rate cuts more directly.” Main drivers The government recently maintained its outlook for GDP of 4.5% to 5.3% growth for 2021 , with consumption expected to fuel growth in the second quarter as part of the Eid celebrations from April to May. On Tuesday, it cut its forecast for 2022 and now expects growth of 5.2% to 5.8% over the next year, compared to an earlier forecast of 5.4% to 6.0%. What Bloomberg Economics says … “Indonesia’s recovery should continue to advance in the second quarter year-on-year, but more quarterly contractions this year cannot be ruled out as the infection rate of Covid-19 variants is now higher alongside relatively slow vaccinations. We still expect a subdued recovery this year, with growth well below the central bank’s forecast range of 4.1% to 5.1%. – Tamara Mast Henderson, Asean Economist Solid trade and investment performance was the main driver of growth earlier this year. Exports and imports exceeded estimates, while FDI rose to three-year highs, particularly in provinces outside of Java’s main growth engine. “The process of economic recovery will differ between provinces and sectors,” said Suhariyanto, head of the country’s statistics office, said at the announcement of the GDP data. “Sectors that are highly dependent on public mobility, such as transportation and housing, will take longer to recover.” While factory activity and consumer confidence have steadily increased, core inflation and retail sales remain subdued as the movement continues the limits limit household spending, which accounts for nearly 60% of the economy. Further details from Wednesday’s release: The economy contracted 0.96% quarter-on-quarter, not seasonally adjusted, which is worse than the 0.85% decline forecast by economists. The first quarter includes information and communication year-on-year (+ 8, 72%). Water supply + 5.49%; Health services + 3.64%; and Agriculture, + 2.95% The largest declines were transportation and storage, down 13.12%; Accommodation, food and drink, -7.26%; Business services, -6.1%; and other services: -5.15% Private consumption decreased by 2.23%, while government spending increased by 2.96% and gross fixed capital formation decreased by 0.23%. Exports increased by 6.74% over the previous year. Imports rose 5.27%. Vaccine Drive By early May, 12.7 million Indonesians had already been vaccinated, although that is still a small percentage of the country’s 270 million people. Private companies will start vaccinating workers as soon as the government sets a selling price for vaccines. “The high-frequency mobility data collected by Google suggests that government restrictions and social distancing are still severely affecting activity,” said Gareth Leather, senior Asia economist at Capital Economics Ltd., wrote in a research report. By maintaining restrictions even as infections decrease, “the government is making a clear compromise to stay one step ahead of the infection curve as the cost of future lockdowns will be worse to the economy.” UOBs Tanuwidjaja said. “This is necessary to achieve a more sustained recovery in the coming quarters.” (Rewrite and add Minister’s comments in third and fourth paragraphs.) For more articles like this, visit bloomberg.com business news source. © 2021 Bloomberg LP