Indonesia exits recession with 7% GDP growth in Q2

A health worker receives a shot of Moderna COVID-19 vaccine at Adam Malik hospital in Medan, Indonesia, August 4, 2021. /CFP

Indonesia pulled out of recession in the second quarter, reporting its strongest annual growth rate in 17 years, but analysts warned its economic recovery will suffer a setback due to a recent surge in COVID-19 infections.

Southeast Asia's largest economy grew 7.07 percent in the April-June quarter compared with a year earlier, its first expansion in five quarters, Statistics Indonesia reported on Thursday.

The expansion rate beat a 6.57-percent forecast by analysts in a Reuters poll and was the highest since the October-December quarter of 2004. The first quarter's contraction was revised to 0.71 percent.

Surging exports – including impressive 56 percent growth in commodity shipments – a rebound in consumption and investment, and bigger government spending boosted activity.

However, the statistics bureau said the high growth rate was also due to low base effects when compared to the weak pandemic-stricken second quarter last year.

Despite the better-than-expected outcome, analysts are downgrading their outlooks for the economy due to the virus' resurgence and mobility restrictions imposed since July.

Indonesia recorded a grim milestone of more than 100,000 deaths from COVID-19 on Wednesday, with 3.57 million people infected, though health experts believe the true numbers may be far higher.

"Indonesia's GDP bounce will be short-lived," said Krystal Tan, an economist with Australia and New Zealand Banking Group (ANZ). ANZ's new forecast is 3.8 percent, down from 4 percent.

"The pace of recovery will be capped until COVID-19 risks fade," said Tan.

The central bank had already lowered its projection to a range of 3.5 percent to 4.3 percent, from 4.1 percent to 5.1 percent, slightly below the government's 3.7 percent to 4.5 percent outlook. Indonesia's economy shrank last year for the first time since 1998, by 2.1 percent.

A few analysts flagged a risk of a double-dip recession if curbs are extended for longer.

The government is trying to bring down the number of people being treated with COVID-19 to around 100,000 per day, from 500,000 now, so that the economy can regain momentum in the fourth quarter and grow more than 5 percent, chief economic minister Airlangga Hartarto said.

Source(s): Reuters