MACROECONOMIC ANALYSIS SERIES: Indonesia Economic Outlook 2021

Economic activities continue to shrink in Q2-2020 where economic growth plunged to -5.32% (y.o.y), much lower than the positive growth in Q1-2020 of 2.97%. The health crisis has halted the economy in nearly all economic sectors with the top three sectors of Indonesia’s economy (manufacturing, wholesale & retail trade, and construction sectors) experienced a more profound negative growth compared to the overall economy. Moreover, economic downturn was also fully reflected in the expenditure side, where the household consumption’s growth dropped to -5.51% (y.o.y) from its positive growth in Q1-2020 of 2.84%. Mobility restriction, precautionary behavior, and labor income losses have led to a sharp contraction in almost all subsectors in consumption, except consumption in health & education and equipment. The limited business activities and household consumptions contributed to the slow credit growth. The low inflation figure during this health crisis also confirms that aggregate demand is still at its lowest level. While from the external sectors, trade continued to decline from its pre-pandemic level due to lower global demand and supply, though the figure has been slightly improving since July which is recorded by positive monthly growth. However, the deeper drop in imports than exports has contributed to the surplus in trade balance and lower CAD which is stood at US$-2.9 billion or equal to -1.2% of GDP in Q2-2020.

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