Virus-hit Indonesian economy shrinks for first time in two decades

JAKARTA (AFP) – Indonesia’s coronavirus-hit economy contracted in the second quarter for the first time in more than two decades, with warnings that its recovery could be among the weakest in Southeast Asia.

Output in the region’s biggest economy slumped 5.3 per cent on-year in April-June, the statistics agency said yesterday, as retail sales and manufacturing took a hit.

That marked Indonesia’s first contraction since the first quarter of 1999 during the Asian financial crisis, putting it on course for its first recession since then.

“Economic activity in Indonesia collapsed in the second quarter,” research house Capital Economics said in a note after the figures were published.

“A failure to contain the virus effectively and inadequate policy support means the recovery is likely to be one of the slowest in the region.”

Governments around the world have been struggling to contain the deadly disease, which forced the shutdown of vast parts of the global economy in the second quarter. Last month, Indonesia’s central bank cut interest rates for the fourth time this year in a bid to boost the struggling economy.

Indonesia announced a stimulus package worth more than USD48 billion to help offset the impact of the virus, which forced a large-scale shutdown that hammered growth, including in the key tourism sector.

Several million Indonesians have been laid off or furloughed, and the government projected that the economy could contract by 0.4 per cent for the full year.

The archipelago, home to nearly 270 million people, eased movement restrictions in a bid to prevent economic collapse but coronavirus infections are mounting, with cases topping 115,000 and more than 5,300 deaths.

The true scale of the public health crisis is widely believed to be much bigger in Indonesia, which has one of the world’s lowest testing rates.

Boosting annual growth above five per cent had been a key priority for Indonesian President Joko Widodo in his second term, which kicked off late last year.

But his government’s handling of the health crisis has been widely criticised.