Indonesia's economy suffers first full-year slump in over two decades in 2020

JAKARTA: Indonesia's economy suffered its first full-year contraction in over two decades in 2020, shrinking slightly more than expected in the fourth quarter as the COVID-19 pandemic continued to hit consumption and business activities.

Southeast Asia's largest economy shrank 2.19% on an annual basis in October-December, the statistics bureau data showed on Friday. Economists in a Reuters poll had expected a smaller 2% contraction after a 3.49% slump in the previous quarter.

Gross domestic product (GDP) fell 2.07% from a year earlier, the first full-year contraction since the 1998 Asian financial crisis, after growing 5% in 2019.

That was slightly bigger than the 2% contraction forecast in the Reuters poll, and roughly in the middle of the government's forecast range for a 1.7%-2.2% fall.

"All sectors of spending in 2020 still posted contractions, except for the government spending ... but generally, not as deep as in Q3 or Q2, which indicates improvements," the head of the statistics bureau Suhariyanto, who only goes by one name, told a virtual news conference.

Indonesia's economy fell into recession last year as the country struggled to get its COVID-19 outbreak under control. It has the highest caseload and death toll from the respiratory disease in Southeast Asia.

The government will focus on accelerating spending and attracting investment to further boost the economic recovery, Indonesia's top economics minister Airlangga Hartarto said on Friday, giving a forecast for 1.6% to 2.1% growth in the first quarter of 2021.

The government also maintained its 5% growth target this year based on hopes that its vaccination campaign, which kicked off in January and aims to inoculate over 180 million people within a year, will boost business and consumer sentiment.

"The economy is counting on a vaccine pivot this year to allow normalisation to gain a foothold," said Radhika Rao, a senior economist at DBS, adding that Indonesia's coronavirus curve had not yet stabilised.

The data on Friday showed household consumption, which represents more than half of Indonesia's GDP, shrank more slowly in the fourth quarter.

It contracted 3.6% after a 4.1% slump in the previous three months, partly due to a temporary easing of coronavirus restrictions.

Jakarta imposed a second round of coronavirus curbs between September and October, and restrictions were reinstated last month due to a spike in cases.

Investment fell 6.2% after 6.5% drop in the previous quarter. Government spending was up just 1.8%, well below the previous quarter's 9.8% growth.

Wellian Wiranto, OCBC economist, revised down his bank's outlook for 2021 GDP growth to 4.9% from 5.2% following the data and predicted stronger support from policymakers.

"Looking at the details of the data, momentum in key components appears to remain rather weak, signalling that the hope for a smooth-sailing recovery in the early months of 2021 may be challenged," he said.