Indonesia’s economy seen contracting more slowly in Q1

JAKARTA: Indonesia’s economy is expected to have contracted more slowly on an annual basis in the first quarter of 2021 as higher consumer spending and investment helped underpin the economy’s recovery from the COVID-19 pandemic.

Southeast Asia’s largest economy is expected to have slumped 0.74% from a year ago during the January-March quarter, after a 2.19 year-on-year contraction in the final quarter of 2020, according to the median forecast of 22 analysts in a Reuters poll.

Gross domestic product likely contracted for a fourth quarter on an annual basis after the economy suffered its first full-year contraction in over two years in 2020 as the COVID-19 pandemic battered businesses and left millions without jobs.

“Indicators show that the economy is doing so much better in 2021’s first quarter compared with 2020’s fourth quarter, showing an early signal of an economic recovery supported by investment and household consumption,” Josua Pardede, an economist at Bank Permata in Jakarta said.

Indonesian car sales grew 10.54% in March from a year ago after the government rolled out tax incentives in February as part of efforts to prop up consumption.

Retail sales were expected to fall 17% annually in March, the central bank said, less than a 19% slump in December.

Indonesia’s economy has also benefited from ample fiscal and monetary stimulus, but some analysts worry ongoing coronavirus restrictions could hold back the economic recovery.

Indonesia has maintained district-level mobility restrictions imposed in February after the number of coronavirus infections peaked in January, even as cases have fallen and a mass vaccination programme has been rolled out.

“Favourable base effects are likely to prop up Q2-Q3 (growth) before easing towards late year. Pandemic management and hastened vaccination will be crucial to provide a durable lift to overall growth,” DBS economist Radhika Rao said.

The government expects the economy to shrink between 0.1% and 1% in the first quarter. It then expects the economy to expand more than 7% year-on-year in April-June as consumption rises during the Eid al-Fitr celebrations. ($1 = 14,465.0000 rupiah) – Reuters