Indonesian economic data likely to show country in recession

Indonesia will publish an initial estimate of first quarter economic growth today. The decline in GDP is expected to continue from Q4 of 2019, moving the country into a recession.

Since the 1997-99 Asian financial crisis, Indonesia has sustained fairly stable 5-6% economic growth, largely due to regional trade liberalisation. However, the current crisis—initially driven by a drop in regional demand for exports in 2019 and exacerbated by the COVID-19 outbreak—will almost certainly interrupt this trend, as projections span from a minor contraction to 3% GDP growth in 2020, which would be the lowest annual rate in two decades.

The greatest deciding factor is the future duration of the pandemic, as growing unemployment numbers have forced the government to divert funds from necessary infrastructure projects to social transfers. The World Bank estimates that Indonesia needs to invest $500 billion into basic facilities to sustain the country’s pre-crisis economic growth.

With decreasing capital flows into the country and government spending diverted into welfare payments, an extended economic decline could delay key projects championed by President Joko Widodo, who has already come under fire for his delayed reaction to the outbreak. Negative public opinion towards the president—the nation’s first from outside the traditional military elite—could result in an increased role for the military in Widodo’s cabinet and across the country.

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