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Indonesian economy shrinks for first time since 1999 in second quarter

JAKARTA (Reuters) - Indonesia’s economy had its first quarterly contraction in over two decades, official data showed on Wednesday, with the government promising faster stimulus spending in coming months after a battering from the coronavirus pandemic.

FILE PHOTO: Stacks of containers are seen at Tanjung Priok port amid the coronavirus disease (COVID-19) outbreak in Jakarta, Indonesia, August 3, 2020. REUTERS/Ajeng Dinar Ulfiana

Southeast Asia’s largest economy shrank by a bigger than expected 5.32% in April-June versus the same period a year ago, according to data from Statistics Indonesia, the first such negative quarterly figure since 1999.

That was worse than the 4.61% contraction forecast in a Reuters poll of economists and down sharply from 2.97% growth year-on-year in the first quarter.

The data showed a broad-based fallout from the pandemic and restrictions to contain its spread. Households curbed spending and businesses delayed investments, while exports were hit by lower global demand and commodity prices.

“The risk of recession is getting bigger considering the slower economic performance in the second quarter,” said Josua Pardede, an economist at Bank Permata, adding that government spending had remained slow.

Finance Minister Sri Mulyani Indrawati said fiscal spending will be more aggressive in the second half to avoid further contraction and the government is planning more stimulus.

Indonesia has budgeted 695.2 trillion rupiah ($47.88 billion) worth of stimulus for 2020 to protect the economy from the fallout of the outbreak including subsidised loans for small businesses and cash assistance for low-income families.

But the data showed government spending falling 6.9% annually in the second quarter.

‘ALL OUT’ STIMULUS

“Indonesia saw the first contraction (since 1999) in the second quarter and this will trigger us to avoid negative growth in the third and fourth quarter,” Indrawati told a virtual press briefing.

She added that the government, the central bank and financial authorities will go “all out” to support growth while maintaining the 2020 outlook of zero to 1% growth.

Wisnu Wardana, an analyst at Bank Danamon, also said further economic stimulus should come from the government given that “monetary policy has been stretched”.

Indonesia’s central bank has cut its key interest rates four times this year by a total of 100 basis points to the lowest since at least 2016, when it adopted the rate as its benchmark.

Bank Indonesia and the government also unveiled earlier this month a $40 billion debt monetisation scheme, with the central bank pledging to buy $28 billion of bonds while relinquishing interest payments.

Household consumption, which makes up around half of the country’s GDP, fell by 5.5% in the second quarter compared to last year, while investment was down 8.61%. Export and imports were down 11.7% and 16.9% respectively over that period.

Indonesia started easing restrictions in parts of the country in June, but the number of coronavirus cases accelerated in July.

Editing by Ana Nicolaci da Costa and Andrew Cawthorne

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