top of page
  • Writer's pictureICMSS

Indonesia Suffers Recession, Again

Indonesia's economy has been in decline since the first quarter of 2020 as the COVID-19 pandemic continues to take its toll. This circumstance means fewer jobs, lower incomes and expenditures, and business shut down. Though several actions have been taken to mitigate the spread of COVID-19, the positive trends of recovery have not spread uniformly, resulting in the continuity and the tightening of Indonesia’s social distancing policy. This of course impacted the limitation of social activity which in turn reduces consumer consumption. The Central Bureau of Statistics (BPS) recorded that Indonesia’s economic growth in the first quarter of 2021 was negative 0.74%. This is inversely proportional to the first quarter of 2020, in which the economy experienced a growth of 2.97%. "Indonesia's economy shrank by 0.74% on a year-on-year basis,” said Suhariyanto, the head of BPS, on Wednesday (5/5). Sri Mulyani, the Finance Minister, forecasted a 4.5% to 5.3% increase in economic growth this year. However, this will depend on the dynamic of COVID-19 transmission and vaccination programs. The government's target will be met if the economy grows by 7% in the second quarter of 2021. Despite the optimistic outlook for the Indonesian economy, the Chief Economist of Bank Mandiri, Andy Asmoro, predicted that the key component of economic growth in terms of spending will remain sluggish on an annual basis in the first quarter of 2021. "We estimate the annual household consumption to contract at a lower rate compared to the fourth quarter of 2021 due to improved consumer trust, as a result of the vaccine programs and government tax incentives,” said Andry Asmoro, Tuesday (5/4).

The global economy in the first quarter of 2021 showed improvement as seen in the global Purchasing Managers Index (PMI), which continued to experience an increase from January to March. This condition is in line with the implementation of COVID-19 vaccination in several countries. However, the contraction in Indonesia's economy contradicts what other countries experienced; some recorded positive growth in the first quarter of 2021. These include China (18.3%), United States (0.4%), Singapore (0.2%), South Korea (1.8%), Hong-Kong (7.8%). From the view of the workforce in the first quarter of 2021, 64.56% of the GDP comes from industry (-1.38%), agriculture (+2.95%), trade (-1.23%), construction (-0.79%), and mining (-2.02%). Out of the five largest contributors mentioned previously, agriculture was the only sector that experienced growth (of 2.95% year-on-year). This statement can be proven by the growth of Food Crops by 10.32%, generated by the increase in the harvested area for rice plants, both lowland rice and lading rice, and the weather that supported the main rice harvest. Moreover, the livestock sector experienced a growth of 2.48%, driven by high domestic demand for chicken and egg production commodities and the optimization of production. Meanwhile, the sectors that contracted the most were the transportation & warehousing sector (-13.12% year-on-year) and accumulated to be the source of the deepest contraction, at -0.54%. On the other hand, the calculation of economic growth in the first quarter of 2021 with expenditure method, household consumption contracted by -2.23%, year on year, and accumulated to be the source of the deepest contraction of -1.22%.

The announcement from BPS regarding economic growth imposes an impact on the capital market. Despite the late statement regarding the nation's GDP, the IHSG remained in the green zone on Wednesday (5/5). The benchmark index exceptionally remained in the green zone, closing at 5,975.91, which surged by 0.2%. Data recorded that 245 of the shares strengthened, 234 shares plummeted, and the remaining 163 stagnant. Despite the rise in IHSG, trade transaction value slightly dropped to Rp 9.2 Trillion. However, as stated in the market consensus by CNBC Indonesia, the IHSG persisted in the green zone despite the recession because the decline was lower than the forecasted consensus. Therefore, investors remain optimistic about the nation's economic prospects, especially following the release of economic growth data in the first quarter of 2021 as the market tends to look ahead. Moreover, the government believes that this recession will soon come to an end. This conviction was backed further by Airlangga Hartanto, Coordinating Minister for Economic Affairs, which estimates that the Indonesian economy can improve up to 7% by the second quarter of 2021. This statement is considered very optimistic, acknowledging that the economy is still in recession at the current time. In addition, the government also accelerated the realization of the national economic recovery program. Exports are expected to escalate following the improved condition of Indonesia's main trading partners, such as the U.S. and China, leading to a surge in commodity prices. In essence, though Indonesia has been enduring negative economic conditions, the impact on the IHSG and capital market is, again, not significant. By the government's strengthening and rapid recovery efforts, daily activities could be anticipated to be back at normal state in the following times.

Sources :


CNBC Indonesia

CNN Indonesia

What would you like to learn next week? Comment, Like & Share!

60 views0 comments


bottom of page