Indonesia: Economy slows sharply in Q1, worse to come in Q2
May 5, 2020
Activity lost momentum in the first quarter, with GDP expanding 3.0% (Q4: +5.0% year-on-year), below market expectations of 4.0% and marking the weakest quarterly reading in nearly two decades.
Domestic demand softened sharply in Q1 due to social distancing measures introduced in March and rising uncertainty as coronavirus cases accelerated. Household spending increased 2.8% in the first quarter, which was below the fourth quarter's 5.0% expansion. Fixed investment growth moderated to 1.7% in Q1, compared to the 4.1% expansion in the prior quarter. However, public spending growth picked up to 3.7% in Q1 (Q4: +0.5% yoy), likely amid government efforts to support the economy.
Exports of goods and services increased 0.2% in the first quarter, which contrasted the fourth quarter's 0.4% contraction. Imports of goods and services contracted at a softer rate of 2.2% in Q4 (Q4: -8.0% yoy). Consequently, the external sector contributed 0.5 percentage points to growth, down from 1.7 percentage points in Q4.
Looking ahead, GDP is seen contracting in Q2 as the full impact of containment measures is felt. As Nicholas Mapa, senior economist at ING, comments: “President Jokowi implemented stricter social distancing guidelines, restricted intra-regional movement and banned travel ahead of a holiday beginning in early April, with such measures expected to curb growth momentum even more.”
Author: Oliver Reynolds, Economist