Macroeconomic Analysis Series: Indonesia Economic Outlook, Q1-2021

Resuming the pattern of the first half of 2020, Indonesia’s economic figure in Q3-2020 came as a disappointment to many as it was worse than expected. Recorded at -3.49% (y.o.y), the official GDP growth of Q3-2020 practically puts Indonesia in a technical recession. Observing deeper to its sectors, the top four sectors of Indonesia’s economy (i.e., manufacturing, wholesale & retail trade, construction, and mining & quarrying sectors) which accounted for more than half of the GDP, still experienced a negative growth in Q3 2020. While in the expenditure side, almost all of the GDP components contracted except the government spending. The total credit fell sharply to its lowest level in line with the slowdown in business activities and weak consumer demand. The persistent muted core inflation suggests that the the purchasing power remains weak until the end of the year. Despite the deep economic downturn due to the health crisis, Indonesia recorded eight consecutive months of trade suprluses from May to December 2020. The trade performance has released the pressures on Indonesia’s current account balance and Rupiah, where current account balance recorded surplus in Q3-2020 and Rupiah is relatively manageable until the end of the year. However, the series of trade balance surpluses does not represent a better economic outlook as it was spurred by the significant drop in imports due to weak international and domestic demand. There is no promising sign of the real sector recovery as long as the imports, which are mainly consisted of raw and capital goods, remains low.

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