Indonesia exits recession with 7% GDP growth in Q2 but coronavirus clouds recovery

[JAKARTA] Indonesia pulled out of recession in the second quarter, reporting its strongest annual growth rate in 17 years, but analysts warned its economic recovery will suffer a setback due to a recent surge in Covid-19 infections.

South-east Asia's largest economy grew 7.07 per cent in the April-June quarter compared with a year earlier, its first expansion in five quarters, Statistics Indonesia reported on Thursday.

The expansion rate beat a 6.57 per cent forecast by analysts in a Reuters poll and was the highest since the October-December quarter of 2004. The first quarter's contraction was revised to 0.71 per cent.

Surging exports - including impressive 56 per cent growth in commodity shipments - a rebound in consumption and investment, and bigger government spending boosted activity.

However, the statistics bureau said the high growth rate was also due to low base effects when compared to the weak pandemic-stricken second quarter last year.

Despite the better-than-expected outcome, analysts are downgrading their outlooks for the economy due to the coronavirus' resurgence and mobility restrictions imposed since July.

Indonesia recorded a grim milestone of more than 100,000 deaths from Covid-19 on Wednesday, with 3.57 million people infected, though health experts believe the true numbers may be far higher.

"Indonesia's GDP bounce will be short-lived," said Krystal Tan, an economist with ANZ who is among those pencilling in slower growth this year. ANZ's new forecast is 3.8 per cent, down from 4 per cent. "The pace of recovery will be capped until Covid-19 risks fade."

The central bank had already lowered its projection to a range of 3.5 per cent to 4.3 per cent, from 4.1 per cent to 5.1 per cent, slightly below the government's 3.7 per cent to 4.5 per cent outlook. Indonesia's economy shrank last year for the first time since 1998, by 2.1 per cent.

The current stay-at-home order, applied in areas with high infection numbers including much of Java and Bali islands, has been extended until at least Aug 9, but authorities are eyeing a September reopening. Only essential and critical sectors of the economy are allowed to operate at varying capacities now.

A few analysts flagged a risk of a double-dip recession if curbs are extended for longer.

Meanwhile, analysts said that the central bank, which has slashed interest rates to record lows and injected over US$57 billion of liquidity into the financial system, is unlikely to deliver more rate cuts.

REUTERS