The government says its economy is showing signs of improvement, but analysts say they see more weakness in the months ahead.

Indonesia slipped into recession for the first time in more than 20 years in the third quarter as the COVID-19 pandemic impacted consumption and business in Southeast Asia’s largest economy, official data showed on Thursday.

The gross domestic product (GDP) shrank from July to September by 3.49 percent annually, as data from the statistics bureau showed, a little more than the 3 percent decline expected in a Reuters survey. The economy shrank in the second quarter compared to the previous year by 5.32 percent.

Indonesia’s first recession since the Asian financial crisis in 1998 – usually defined as two consecutive quarters of economic contraction – came as the country struggled to contain the coronavirus outbreak.

The Indonesian authorities with the highest COVID-19 cases and the highest death toll in Southeast Asia estimate that around 3.5 million people will lose their jobs this year. Both the government and the central bank are taking action to mitigate the blow.

Statistics bureau chief Suhariyanto said that despite the annual decline, the economy improved in all sectors in the third quarter compared to three months earlier.

“The recovery should continue in the coming months but is likely to be slow and uneasy,” said Gareth Leather, senior Asian economist at research firm Capital Economics, in a research note sent to Al Jazeera.

“While Indonesia is far from getting the coronavirus under control, the number of new cases appears to be decreasing. This can ease social distancing measures, ”added Leather.

Employment Law

President Joko Widodo has directed ministers to accelerate budget spending for the remainder of the year and plan project procurement to accelerate spending in early 2021.

The Indonesian government’s new so-called omnibus law, which contains controversial labor reforms, has sparked major protests [File: Willy Kurniawan/Reuters]The president recently signed a controversial law aimed at attracting investment and creating jobs. However, unions are challenging the law in the Constitutional Court and have led to large and sometimes violent protests in recent weeks.

The government has cut its economic forecasts several times and now expects GDP to decline between 0.6 and 1.7 percent for the year as a whole. The tightening of social restrictions in Jakarta amid renewed spikes in virus cases has slowed recovery.

Domestic demand, the mainstay of the Indonesian economy, has not picked up yet and core inflation has continued to weaken since March.

[Bloomberg]The country has posted trade surpluses in recent months as exports improve. However, a recent survey of purchasing managers found that manufacturing continues to struggle.

On a quarterly, non-seasonally adjusted basis, GDP rose 5.05 percent from June to September, but was also slightly below expectations for a 5.34 percent increase in Reuters’ poll.

“Given the weak momentum from the third quarter, GDP is for [the fourth quarter] is also at risk, and it is now more likely than before that fourth quarter growth will still be well negative at around -2 percent, which would bring full year GDP to -2 percent, “said Wellian Wiranto, economist at OCBC.

The government has pledged to accelerate spending to put GDP back into growth this quarter, while Bank Indonesia Governor Perry Warjiyo said the central bank had more than cut interest rates and bought government bonds USD 30 billion more room for maneuver.


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