ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter
Economy

Indonesia GDP grows 7.07% in Q2 for first expansion in 5 quarters

But social restrictions to curb delta variant set to slow economy in coming months

A general view of the skyline of Jakarta, the capital city of Indonesia, on August 5.   © Reuters

TOKYO -- Indonesia's economy grew for the first time in five quarters in the April-June period, recording its strongest expansion in more than a decade.

Indonesia's real gross domestic product rose 7.07% in the second quarter from a year earlier, data from the country's statistics agency showed Thursday, faster than the median forecast of 6.57% by 22 analysts polled by Reuters. This was the fastest GDP growth since the fourth quarter of 2004, according to data from CEIC. The expansion was given a leg up from a low base effect, with GDP having contracted 5.3% in the same period last year.

But growth appears set to slow again in coming quarters. Tighter social restrictions introduced in early July to curb the spread of the delta coronavirus variant are set to weigh heavily on Southeast Asia's biggest economy.

Indonesia enjoyed a rare COVID-19 lull during the three months from April, with daily new cases averaging around 5,000 until early June. Transportation and warehousing, as well as accommodation, food and beverage sectors had the biggest growth in the period, as people's mobility increased, statistics agency chief Margo Yuwono said in an online news conference. The renewed optimism contributed to a second-quarter year-on-year increase of 5.93% in household consumption, which makes up over half of Indonesia's GDP.

Despite the strong growth, Yuwono admitted that the Indonesian economy "has not returned to normal."

The economy "has not returned to conditions before the pandemic. [The latest GDP figure] is a positive economic indicator, but the achievement is not the same with normal conditions," he said.

The delta variant has now taken a grip, pushing the country's total COVID death toll past 100,000.

"The near-term economic outlook has deteriorated markedly more recently, due to a surge in virus cases," said Gareth Leather, senior Asia economist at Capital Economics. "While there are signs that recorded infections have peaked, a low level of testing and the high share of tests coming back positive indicate that the situation is much worse than the headline figures suggest," he said, adding that the firm expects to see a contraction in GDP next quarter.

Bank Indonesia, the country's central bank, lowered its 2021 growth forecast to 3.5%-4.3% from the previous 4.1%-5.1% in its July monetary policy meeting. In its meeting in December, the central bank was forecasting 4.8%-5.8% GDP growth for this year. Meanwhile the finance ministry projection for GDP growth this year is 3.7%-4.5%.

The government is hoping its vaccination program will help the economic recovery, but progress remains slow. Despite efforts to expedite inoculations, only 7.8% of the population eligible for vaccination has been fully vaccinated, according to Our World in Data. The country has decided to administer third shots to medical workers, and with talk of booster shots potentially being needed for the general population, herd immunity may be some time away.

Finance Minister Sri Mulyani Indrawati said Wednesday that the country's health budget could balloon to 300 trillion rupiah ($20.9 billion) this year, some 39.5% higher than what is currently allocated.

"Despite the recent easing of COVID cases, still a relatively high number of deaths and faster increases in cases outside the islands of Java and Bali may slow economic reopening," said Aldian Taloputra, senior Indonesia economist at Standard Chartered Bank. "We estimate that each one-month period of mobility restrictions reduces GDP growth by around 0.5ppt."

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more