Economic Update Indonesia: Despite Negative Indications, Strong Growth Expected in Q3-2021
The economic rebound in the second quarter of 2021 – with a +7.07 percent year-on-year (y/y) growth pace – was great for Indonesia, albeit it is obviously related to the ‘low base effect’ (as Indonesia had hit its rock bottom in the same quarter one year earlier). But what about the future, or more precisely: Q3-2021?
Well, there is a bit of a mixed outlook. On the one hand, Indonesia can still enjoy a fair bit of ‘low base effect’ in Q3-2021 (as Indonesia’s gross domestic product, GDP, had contracted -3.49 percent in Q3-2020). But on the other hand, economic activity still seems far away from normal levels.
In terms of Q3-2021 GDP growth, there is the problem that Indonesia cannot enjoy the effects of Ramadan-Idul Fitri celebrations in Q2-2021 that triggered a significant boost in consumption. Not only that, the Indonesian government actually imposed tighter social and business restrictions (called PPKM Level 1-4) per 3 July 2021. And considering these restrictions only started to be wound down (quite modestly) from the second half of August 2021, their effects will be felt throughout the third quarter. Moreover, household consumption is typically the biggest contributor to overall economic growth in Indonesia, and so: when household consumption is held back, so too is economic growth of Indonesia.
Yet, on the other hand, the number of new COVID-19 cases has declined drastically across Indonesia, hence should make Indonesians a bit more confident to consume. In fact, restrictions on shopping malls were eased in several urban centers in August 2021, thus should encourage some more visitors and household consumption.
Although there is reason to be a bit pessimistic about the situation (which we explain below on the basis of several macroeconomic indicators), Indonesia Investments does expect the country’s GDP growth to be in the range of 4.0 – 5.0 percent (y/y) in Q3-2021, especially thanks to the (still) low base effect. Meanwhile, the Indonesian government (actually the Finance Ministry) holds two GDP growth scenarios for Q3-2021: (1) the ‘heavy scenario’ with the range set at 4.0 – 4.6 percent (y/y), and (2) the ‘moderate scenario’ with the GDP growth range set at 5.4 – 5.9 percent (y/y).
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This is the introduction to the article. The full article is available in the August 2021 report. This report can be ordered by sending an email to [email protected] or a message to +62.882.9875.1125 (including WhatsApp).
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