Indonesia: GDP contracts at milder pace in the third quarter
GDP slid at a more moderate rate of 3.5% year-on-year in the third quarter, above the 5.3% contraction seen in the second quarter, as domestic lockdown measures were eased somewhat and external demand recovered slightly.
Private consumption dropped at a softer rate of 4.0% year-on-year in Q3, following the 5.5% contraction in Q2. Fixed investment also fell at a milder pace of 6.5% in Q3, up from the 8.6% contraction recorded in the prior quarter. In contrast, public consumption rebounded, growing 9.8% in Q3 (Q2: -6.9% yoy), as the government was finally able to execute stimulus measures—the slow implementation of stimulus dogged public consumption in the prior quarter.
On the external front, exports of goods and services dropped at a softer rate of 10.8% in Q3 (Q2: -11.7% yoy). Conversely, imports of goods and services declined at a quicker pace of 21.9% in Q3 (Q2: -17.0% yoy). As a result, the external sector contributed markedly to overall GDP, preventing a larger contraction.
Looking forward, the economy should return to growth next year, although much depends on the evolution of Covid-19 and the availability of a vaccine. Commenting on their outlook, analysts at UOB note:
“Looking at Indonesian mobility levels and the development of Covid-19, it is quite unlikely that Indonesia could post positive growth in 4Q20. Overall, we now expect almost flat growth in 4Q20 (of -0.30% y/y), bringing 2020 full year growth to -1.5%. Driven by availability of a vaccine, adaptability in living with the virus, and ‘revenge’ consumer spending, we expect Indonesia’s economy could return to positive growth territory starting in 1Q21.”