In Q4-2021 the Indonesian economy expanded by 5.02 percent year-on-year (y/y). While at first sight, this may seem like a return to normal as the Indonesian economy typically expanded by around 5 percent (y/y) in pre-COVID-19-crisis times, we have to remember that growth still comes from a very low base (in Q4-2020 the economy of Indonesia was still feeling the heavy impact of the COVID-19 pandemic, reflected in the 2.19 percent y/y contraction in GDP; in fact, the impact is felt until today, albeit the impact is gradually waning). So had economic activity really been back at normal levels, then we would have expected a growth level at 7 percent (y/y) in Q4-2021.

Below, we will see – for example by zooming in on household consumption – that Indonesia’s economic activity (thus growth) indeed remained disrupted in Q4-2021 (compared to normal times), but we did detect an encouraging improvement.

Meanwhile, with the Q4-2021 data in hand, it was also possible for BPS to announce the full-year 2021 economic growth figure for Indonesia, namely 3.69 percent (y/y), which is slightly above our projection (3.50 percent y/y). It is a solid rebound from the 2.07 percent (y/y) contraction that Indonesia experienced in the preceding year (which had been the first full-year contraction for Southeast Asia’s largest economy since the Asian Financial Crisis in 1998).

What is positive is that Indonesia’s per capita GDP was higher in 2021 than in pre-COVID-19 times, and so it can certainly be argued that – overall – the COVID-19 crisis has been overcome (hence the whole economy was bigger in size in 2021 compared to pre-COVID-19-year 2019; as can be seen in the table below).

However, what these data do not show is that the COVID-19 crisis has caused some significant shifts in the composition of the national economy (the question is to what extent these shifts are structural or temporary). For example, the contribution of household consumption to Indonesian GDP has declined quite significantly. While in full-year 2021 household consumption only contributed 54.4 percent to overall GDP, this figure used to fluctuate somewhere between 56-58 percent several years ago. We assume this is a situation that requires some time to heal as the declining role of household consumption toward the economy can be attributed to the government’s social and business restrictions that made it difficult for people to consume, while many people also preferred to avoid crowds (for example in shopping malls) in fear of a COVID-19 infection (a situation that was partly – but not fully – compensated by the significant increase in e-commerce and food delivery orders). And, it is also true that layoffs in Indonesia certainly undermined people’s purchasing power (with the country’s unemployment rate rising from 5.3 percent of the population in 2019 to 7.7 percent in 2020, before easing to 6.5 percent in 2021).

The contribution of investment to Indonesian GDP has also fallen as a consequence of the COVID-19 crisis as the unconducive business circumstances due to COVID-19-related uncertainty made investors hesitant to invest.


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