Indonesia economic recovery to remain moderate on slow vaccine rollout
SINGAPORE (ICIS)–Indonesia’s economic recovery is expected to continue in the second quarter as low base effects kick in but the growth will likely only be moderate as the country struggles to achieve its COVID-19 vaccination targets.
The country’s economy fell by 0.74% year on year in the first quarter of 2021, the fourth straight quarterly contraction, recovering from the 2.19% drop in the fourth quarter of 2020, official data showed on 5 April.
The contraction in the first quarter was underpinned by mobility restrictions that remained in place; given high number of COVID-19 daily cases at the start of the year that put a dent on domestic consumption.
Indonesia is southeast Asia’s biggest economy and a major importer of organic chemicals and vehicles.
Household consumption – the biggest GDP contributor – contracted by 2.23% year on year in Q1 2021 versus the 3.61% contraction in the last quarter of 2020.
Solid performance in investment, trade and government expenditure were the main growth drivers in the first quarter.
“While we saw the recovery momentum from other contributors (mainly from net exports, government consumption, and investment), the improvement on Indonesia’s economy main contributor, private consumption proved to be marginal rather than a strong rebound,” the UOB Global Economics & Markets Research said in a note on Thursday.
“While Ramadhan and Eid Festivities may lift domestic consumption, it could also provide a stage for a potential virus resurgence, thus dragging the opening of economic activity longer,” it said.
Indonesia’s export growth picked up to 6.7% year-on-year in the first quarter from a contraction of 7.2% in the fourth quarter of 2020.
The manufacturing sector contracted by 1.4% year on year in the first quarter, improving from the 3.1% drop in the fourth quarter of 2020, led by higher output in the rubber and transport industries
Full-year growth of 4.0%-5.0% might still be within reach if Indonesia manages to smoothen the transition on economic reopening and speed up its vaccination program, according to UOB.
So far, as many as 12.7m people had received at least one vaccination shot, and 8m of them had received their second shot, bringing Indonesia’s vaccination rate to 4.5%, according to Nomura Global Markets Research.
The vaccination rate is much higher than regional peers such as Malaysia, Thailand, and Philippines, but remains below the government’s target of 15% of the population by April of this year, it said in a note.
“All this supports our view that normalisation of economic activity is unlikely to happen quickly and will be reflected in a modest recovery in GDP growth,” Nomura added.
Focus article by Nurluqman Suratman
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