Indonesia's Q1 GDP growth is weakest since 2001, recession looms

Jakarta

INDONESIA'S economy grew at its weakest pace since 2001 in the first quarter, as the coronavirus pandemic halted business activity in South-east Asia's largest economy and fuelled expectations of a looming recession.

The coronavirus crisis has hit consumption - the main driver of the economy - investment and vital commodity exports, although Indonesia's growth pace was still higher than some countries in the region.

Gross domestic product (GDP) in January-March expanded a slower-than-expected 2.97 per cent from a year earlier, the weakest pace since Q1 of 2001, statistics bureau data showed, and down from the previous quarter's 4.97 per cent.

The economy held up relatively better in Q1 because Indonesia locked down parts of the country later, said Capital Economic's senior Asia economist Gareth Leather, who sees a sharp contraction in the second quarter.

"The lockdown will need to remain in place for a while longer yet. Failure to contain the virus would have significant implications for the economic outlook," he added.

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The world's fourth-most populous country first detected coronavirus cases in early March and began closing schools and offices later in the month to contain its rapid spread.

It has reported 11,587 infections and 864 deaths, though authorities hope that Indonesians would be able to resume normal activities by July.

Bank of America's economist Mohamed Faiz Nagutha said that Indonesia may enter its first technical recession since the Asian financial crisis by Q2.

He said that Q1 data would likely show a contraction when seasonally adjusted and forecast a near minus 5 per cent quarter-on-quarter plunge in the April-June quarter.

Bank Permata economist Josua Pardede sees a recession by the third quarter if Indonesia extends its partial lockdowns and the government's stimulus does not work quickly enough.

Finance Minister Sri Mulyani Indrawati has flagged a risk of recession and a full-year GDP contraction of 0.4 per cent, but said that authorities were working to prevent this.

Economists say that the data signals a need to cut interest rates further.

Both Standard Chartered and Jakarta-based Bank Danamon predict cuts of 50 basis points in total for the rest of the year.

Bank Indonesia has lowered rates six times since 2019 and pumped money into the financial system, while the government has expanded its fiscal deficit to the biggest in more than a decade to fund spending on healthcare, welfare and stimulus.

Airlangga Hartarto, Indonesia's coordinating minister for economic affairs, said that the government was maintaining its 2.3 per cent annual growth target for 2020.

"There is a shock in the demand side, especially in the second quarter as the government decided on large-scale social restrictions to cut the spread of Covid-19," he told an online briefing.

In January-March, household consumption, which accounts for over half of GDP, registered growth of just 2.84 per cent, compared with around 5 per cent in recent quarters.

Investment and exports also weakened, growing 1.7 per cent and 0.24 per cent, respectively.

Mr Hartarto said that Indonesia's Covid-19 task force was preparing an "exit strategy" to allow factories to run under stricter health protocols so some businesses can re-start production.

The statistics bureau said as of February that Indonesia's unemployment rate barely changed from a year earlier, but job advertisements indicate a widespread drop in hiring. REUTERS