Indonesia’s economy snapped a year of contractions in the second quarter as a temporary relaxation of virus curbs benefited consumption and investment — but before restrictions were reimposed.
Gross domestic product rose 7.07% from a year ago, the statistics bureau announced Thursday. That was the fastest pace since 2008, according to data compiled by Bloomberg, and beat the median estimate of 6.72% in a survey of 23 analysts.
“The number is obviously flattered by base effect from last year’s deep slump, but nonetheless signals a fairly strong recovery momentum in April and May especially, before the pandemic resurgence hit Indonesia significantly,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore. “It also offers hope that, should Indonesia manage to get the pandemic under better control, the underlying momentum can recover quite well.”
The Jakarta Composite Index gained 0.8% to its highest level in more than four months and the rupiah edged down 0.2% to 14,343 to the dollar on Thursday.
Indonesia had seen four straight quarters of contraction, including the first three months of 2021, when GDP shrank a revised 0.71%. Economic growth for April-June was 3.31% compared to the previous quarter on a non-seasonally adjusted basis, higher than the 2.69% estimated by economists.
Southeast Asia’s largest economy now must sustain growth while grappling with one of the worst coronavirus outbreaks in the world. Movement restrictions were raised to their highest level last month to halt a record increase in infections and fatalities from the delta variant.
There are encouraging signs as daily cases start to decline, Finance Minister Sri Mulyani Indrawati said in a Thursday briefing. GDP growth could hit the upper end of the 4%-5.7% forecast for this quarter if the government can get the delta strain firmly under control, she said.
Airlangga Hartarto, coordinating minister for economic affairs, added that GDP could expand more than 5% in the fourth quarter as the government seeks to bring active cases below 100,000, from over 500,000 currently.
The second-quarter figures show that “with improved handling of health and a decrease in Covid-19 cases, it will encourage people’s mobility and ultimately our economy will improve,” Margo Yuwono, head of the country’s statistics office, said during the data release. “Third-quarter growth could continue to improve if the patterns remain good, but it will be very dependent on the handling of Covid.”
Analysts said the low base for comparison a year ago masked weakness in the recovery.
“GDP is still nearly 1.5% below its pre-crisis level and over 8% below its pre-crisis trend,” Gareth Leather, senior Asia economist at Capital Economics Ltd., wrote in a note after the data. “The near-term economic outlook has deteriorated markedly more recently” due to the surge in virus cases.
Consumption and industry activity were relatively robust in the second quarter due to curbs that were temporarily relaxed and spending around religious holidays, with retail sales surging and manufacturing still expanding. With curbs recently reinstated amid the new outbreak, these indicators are beginning to show fresh weakness.
Major cities will remain under the strictest curbs until Aug. 9, with the government shifting its goal from achieving herd immunity to controlling the pandemic.
Some sector details in the second quarter, in year-on-year terms, include:
- Private consumption +5.93%
- Government spending +8.06%
- Gross fixed capital formation +7.54%
- Transportation and warehousing +25.1%
- Accommodation and food and beverage +21.6%
- Exports +31.78%, imports +31.22%
Nicholas Mapa, an ING Groep NV economist, warned that the return to partial lockdown meant the second-quarter bounce would likely be “short-lived.” Annual GDP growth will likely decelerate in the July-September period and shrink on a quarterly basis, he said.
Even if the current outbreak abates, Indonesia remains vulnerable until it achieves widespread vaccine coverage, said Krystal Tan and Sanjay Mathur, economists at Australia & New Zealand Banking Group.
“The pace of recovery will be capped until Covid-19 risks fade,” they said, lowering their 2021 GDP forecast to 3.8%, from 4%. “Restrictions will need to remain a key containment tool for a prolonged period and any reopening will take place gradually.”