Indonesia may fall into recession this year but it still has a chance to avoid it, according to the head of the Fiscal Policy Office of the Finance Ministry Febrio Kacaribu. Kacaribu also noted that even if Indonesia fell into recession, it would be modest at about 0%, citing increasing tax revenue and loan distribution in July which were seen as signals of an economic recovery.
The COVID-19 infections continue to increase in Indonesia. On July 27, the Health Minister reported 1,525 new COVID-19 cases, bringing the total cases to 100,303, with death toll reaching 4,838. Despite the rising number of COVID-19 cases, the central and regional governments have already relaxed restrictions amid fear of severe economic slowdown.
Indonesia's GDP is expected to contract by 3.8% in the second quarter of 2020 after registering 2.97% growth in the first quarter, the weakest in 19 years. Finance Minister Sri Mulyani warned that Indonesia might fall into a recession in the third quarter that would mark the country’s first recession since the 1998 Asian financial crisis.
The official growth projection for the third quarter ranges between 4.8 contraction under the worst-case scenario and 1.2% growth under the best-case scenario. Meanwhile, the full-year growth is pegged between 0.4% contraction and 1% growth, with second-half growth expected at between 0.3% and 2.2%.
The World Bank, in its Indonesia Economic Prospect report, said that Indonesia’s economy would suffer zero percent growth this year. However, it warned that it might fall into a 2% if mobility restrictions are further implemented and the global GDP shrank by 7.8%. Under such a scenario, Indonesia will face a significantly increasing number of poverty, especially if no additional social assistance is issued.
To prop up growth in the third quarter, President Joko Widodo urged government institutions to accelerate state spending, which in the first half, has reached only 39% of this year’s target. At the same time, central bank Governor Perry Warjiyo vowed to provide further monetary stimulus. Bank Indonesia has agreed to buy a $40 billion government bond to ease the government’s debt loads and bolster the economy.
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Published on July 27, 2020 5:31 PM (GMT+8)Last Updated on July 27, 2020 5:31 PM (GMT+8)
