Economy of Indonesia Enters Recession: GDP Contracts 3.49% in Q3-2020
As expected, the Indonesian economy entered a recession in the third quarter of 2020. On Thursday (05.11.2020), Indonesia's Statistical Agency (BPS) announced that Q3-2020 gross domestic product (GDP) growth contracted by 3.49 percent year-on-year (y/y), which makes it the second consecutive quarter of negative growth.
The Indonesian government's self-imposed social and business restrictions (taken in an attempt to prevent the further spread of COVID-19) are the main reason why the economy has been crashing in the second and third quarters of 2020. It is a development that is not only occurring in Indonesia but across the world.
The COVID-19 crisis triggered a decline in household consumption (that typically accounts for between 55-60 percent of Indonesia's total economic growth) of 4.04 percent (y/y). Gross fixed capital formation (contributing over 30 percent to economic growth) contracted 6.48 percent (y/y) in Q3-2020, while exports of goods and services contracted 10.82 percent (y/y).
The only optimistic news is that the economic contraction in Q3-2020 was not as wide as in the preceding quarter (when the economy contracted by 5.32 percent y/y). This was also in line with expectations since most of the restrictions were eased in the third quarter, and thus now allow more room for economic activity. Most likely there will be another small improvement in Q4-2020. However, we do still expect to see negative growth in the last quarter of 2020 (as well as in the first quarter of 2021 considering it is unlikely that a safe COVID-19 vaccine will become available in the next couple of months).
What is also positive, is that our earlier GDP growth forecast of -2.50 percent (y/y) for Indonesia's economic growth in full-year 2020 could be a bit too pessimistic. We now expect the Indonesian economy to contract between 2.0 and 2.5 percent in full-year 2020.
In our November 2020 report we will analyze Indonesia's Q3-2020 economic growth in great detail. This report can be ordered by sending an email to info@indonesia-investments.com or a message to +62.8788.410.6944 (including WhatsApp).
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