Indonesia's economy contracts for first time in 21 years

5.32% Q2 contraction led by transportation and logistics, plus hotel and F&B sectors

Indonesia's economy contracted by 5.32 per cent in the second quarter compared with a year ago - its first negative performance in 21 years.

The contraction was led by two sectors - transportation and logistics, as well as hotel, food and beverages - as overall demand all but disappeared due to the ongoing coronavirus pandemic and partial lockdowns imposed in capital Jakarta and around the country.

South-east Asia's biggest economy expanded by 2.97 per cent year on year in the first quarter.

Indonesia's National Statistics Agency (BPS) announced yesterday that the April-to-June performance was the worst quarter since the first quarter of 1999, when the economy shrank by 6.13 per cent due to lingering effects from the 1997/1998 Asian financial crisis.

The transportation and logistics sector shrank by 31 per cent in the second quarter, compared with the same period a year ago. The hotel, food and beverages sector contracted by 22 per cent, according to BPS.

Indonesia reported its first Covid-19 case in early March and in the following month, cities and provinces started to impose so-called large-scale social distancing measures (PSBB) - equivalent to a partial lockdown.

The PSBB drastically reduced train and bus services, practically banned intercity travel, while restaurants and food outlets severely restricted their businesses.

In June, Jakarta and scores of other regions started to lift part of the restrictions, including allowing restaurants to reopen and use up to half of the seating capacity, and letting workers go to the office on alternate days and work on a staggered schedule, to avoid crowding in lifts.

Frequently used as a gauge for consumer demand, sales of motorcycles, cars and cement saw significant declines in the second quarter, BPS said.

The shipment of motorcycles from manufacturers to dealerships fell by 80 per cent year on year in the second quarter to 313,625 units.

In the same period, sales of cars fell by 89 per cent to 24,042, and the production of cement dropped by 9 per cent.

Foreign tourist arrivals in the second quarter plunged by 88 per cent to 482,650 during the same period, compared with the April-June period last year.

PICK-UP SEEN IN JULY

We noticed a pick-up in buying power in July, but compared with the year-earlier period it was still way weaker.

MR KECUK SUHARIYANTO, head of Indonesia's National Statistics Agency, hinting that things may be improving in the third quarter.

"We noticed a pick-up in buying power in July, but compared with the year-earlier period it was still way weaker," the head of BPS, Mr Kecuk Suhariyanto, said in a hint that things may be improving in the third quarter.

"Let us hope the second quarter be the only quarter with a negative growth," Mr Kecuk said.

The administration of President Joko Widodo is putting in efforts to avoid a recession, usually indicated by two consecutive quarters of negative growth, by driving more social aid spending such as grants and subsidised loans in the third quarter.

The efforts, however, have been partially hampered by the country's weak database system that could ensure funds would reach eligible recipients quickly.

Indonesian bureaucrats have also been slow to disburse the funds for fear of being wrongly accused of embezzling government funds.

A version of this article appeared in the print edition of The Straits Times on August 06, 2020, with the headline 'Indonesia's economy contracts for first time in 21 years'. Print Edition | Subscribe