MACROECONOMIC ANALYSIS SERIES: Indonesia Economic Outlook 2022

Indonesia is officially out of technical recession. Grew by 7.07% (y.o.y) in Q2 2021, Indonesia experienced its highest GDP growth in the last 17 years after suffering economic contraction in the preceding four quarters. Although encouraging, Indonesia’s high economic growth in the second quarter of 2021 is not much of a surprise. There are at least five key elements that play a big part in producing high level of this quarter’s GDP growth. First, the annual rate of Q2 2021 GDP growth is measured in relative to the low base of GDP in the same period of 2020, which recorded a massive contraction of 5.32% (y.o.y). The second factor is the easing of social restrictions. Although the third Large-Scale Social Restrictions (PSBB Jilid III) was in place during Q2 2021, community mobility continued to increase compared to previous quarter. The third factor is the momentum of Ramadan and the celebration of Eid al-Fitr, which falls in the second quarter of 2021. Historically, the quarter in which these two events occurred in almost always recorded the highest GDP growth compared to other quarters throughout the year. The fourth factor is the export side. The underway recovery of several of Indonesia’s main trading partners, such as China and the US, boosted demand for export goods from Indonesia. The last factor that contributed to the rapid GDP growth in Q2 2021 was the continuation of stimulus provided by GoI. In addition to a rather generous social assistance program to protect the poor and vulnerable, GoI has also issued a stimulus for business and household consumption.

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