Adrian Wail Akhlas, Jakarta – Indonesia's economic growth is expected to rebound this year after it fell in 2020 into its first recession since the 1998 Asian financial crisis, but the coronavirus pandemic will continue to dampen economic activities, according to the reports of several international organizations.
According to the latest economic outlook from Oxford Economics commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW), the country's gross domestic product (GDP) is forecast to shrink 2.2 percent in 2020 and rebound to 6.0 percent growth in 2021, driven by increases in consumer and infrastructure spending.
"Retail sales and industry production are relatively stable in Indonesia compared to Southeast Asian peer countries," the ICAEW said in a statement on Dec. 28. It added, however, that Indonesia's economic recovery remained uncertain, as social mobility and retail sales were still weak compared to pre-pandemic levels, while imports fell significantly last year.
Indonesia plunged into its first recession in two decades in the third quarter of 2020 as the government struggled to contain the coronavirus outbreak and the attendant economic fallout.
The government has further downgraded its 2020 GDP forecast to a contraction of between 1.7 percent and 2.2 percent amid the continuing rise in COVID-19 cases, as well as from the tighter restrictions during the year-end holiday season that are expected to hit consumption.
The government made concerted efforts to ban crowd-pulling events from Dec. 18 to Jan. 8, including New Year's Eve celebrations, in a bid to prevent a post-holiday spike in coronavirus infections.
"We expect household spending to contract by 3.6 percent to 2.6 percent due to the increase in COVID-19 cases in December that prompted tighter restrictions," Finance Minister Sri Mulyani Indrawati said during a recent virtual press briefing, adding that she expected the economy to grow 5 percent in 2021.
As regards the region, the ICAEW has forecast that Southeast Asia's GDP will contract 4.1 percent in 2020 before expanding 6.2 percent in 2021 as a result of the low base effect, coupled with fiscal and monetary support. It has warned that growth might be constrained by further social distancing measures, but countries that are able to roll out vaccines quickly could continue to ease restrictions.
"While uncertainties remain and most economies will take time to recoup lost output, risks have become more balanced with recent positive news on vaccines and regional growth prospects for Southeast Asia in the medium to long term are optimistic," it stated.
Earlier reports from other international institutions projected a stronger Indonesian economy in 2021, with the World Bank forecasting 4.4 percent growth and the Asian Development Bank (ADB) forecasting 4.5 percent growth.
"[Indonesia's] Growth in 2021 is projected to rebound, partly driven by a base effect and assuming that consumer confidence improves and household income is supported by a stronger labor market and adequate social assistance," the World Bank said in its December 2020 Indonesia Economic Prospects (IEP).
"Public health remains a top priority to allow the economy to stay open and to move towards a safe full reopening," said the IEP, and that continued improvement in testing and contact tracing, as well as preparations to procure and widely administer effective vaccines were the keys to recovery.
The bank warned that the possibility of a surge in virus cases could trigger tighter mobility restrictions in the country, and that slower-than-expected progress in the availability of an effective and safe vaccine "would weaken consumer and business confidence and dampen economic activity longer than expected".
Furthermore, weaker global demand and slower recovery among advanced economies would weaken trade and commodity prices, which might impact the Indonesian economy, it added.