Indonesia exits recession with 7% growth in Q2, but virus clouds recovery

The central bank had already lowered its 2021 projection to a range of 3.5% to 4.3%, from 4.1% to 5.1%, slightly below the government’s 3.7% to 4.5% outlook.

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% in the April-June quarter compared with a year earlier, its first expansion in five quarters, Statistics Indonesia reported yesterday.

The pace was stronger than the 6.57% growth expected in a Reuters survey of analysts, and the highest since the October-December quarter of 2004. The first quarter’s contraction was revised to 0.71%.

Surging exports – including impressive 56% 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.

On a quarterly, non-seasonally adjusted basis, the economy grew 3.31%, compared with a revised 0.92% drop in January-March. Analysts had expected 2.94%.

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

Indonesia recorded a grim milestone of more than 100,000 deaths from Covid-19 on Wednesday, with 3.53 million people infected, though health experts believe the true numbers may be far higher.

David Sumual, chief economist of Jakarta-based Bank Central Asia, said anti-virus measures are expected to drag down third-quarter growth by 0.6 point to 3.5%.

He has lowered his full-year growth estimate to between 3.6% to 3.7%, compared with a 4.5% projection before the new wave of infections hit.

“We won’t completely return to pre-Covid-19 levels” this year, Sumual said.

Bank Mandiri revised down its 2021 growth outlook to 3.69% from 4.43%, economist Faisal Rachman said.

The central bank had already lowered its projection to a range of 3.5% to 4.3%, from 4.1% to 5.1%, slightly below the government’s 3.7% to 4.5% outlook.

Indonesia’s economy shrank last year for the first time since 1998, by 2.1%, as Covid-19 and measures to contain it hit nearly all aspects of economic activity. — Reuters

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