Indonesia’s economic growth slows sharply in first quarter

Bloomberg

Indonesia’s economic growth slowed sharply in the first quarter of the year, amid expectations the coronavirus pandemic will take an even heavier toll on Southeast Asia’s biggest economy in months ahead.
Gross domestic product rose 2.97% in the first quarter from a year ago, the statistics office said on Tuesday. That was worse than the median estimate of 4% in a Bloomberg survey of economists and the weakest showing since 2001, according to statistics office head Suhariyanto, who goes by one name.
GDP contracted 2.41% in the first three months of the year compared to the previous quarter, worse than the
1.27% contraction expected by economists.
“This shows the economic hit was already large due to weak external demand at the onset of the Covid-19 outbreak,” said Euben Paracuelles, an economist at Nomura Holdings Inc in Singapore.
“This is likely going to be compounded by the local outbreak and containment measures which started in April, suggesting growth could be much worse” in the second quarter of the year.
Tuesday’s data covers a period when the impact of the virus was only beginning to be felt. The government has since progressively tightened restrictions on movement to slow the spread of the pandemic.
Several leading indicators from April suggest that economic engines have slowed “much more” than they had in March, said Wisnu Wardana, an economist at PT Bank Danamon Indonesia. Data on May 04 showed Indonesia’s purchasing managers index plunged to a record low of 27.5 in April amid global supply disruptions.
“There’s a good chance that the second quarter will record negative growth compared to the same period last year, providing a reason for the central bank to cut its policy rate further,” he said, adding he expects two more cuts of 25 basis points this year.
Indonesia’s central bank has cut interest rates twice this year — following four reductions last year — and has adjusted macroprudential measures to support growth.
The Jakarta Composite Index, which was up 1.4% at one point on Tuesday, pared gains after the data. The rupiah was unchanged and the yield on 10-year government bonds rose two basis points from the day’s low.

Outlook Uncertain
Official growth forecasts for the year have been slashed to 2.3% from 5.3%, with the government warning the economy could contract under a worst-case scenario.
With the second quarter set to be worse, the government may have to revise down its economic outlook once again, said David Sumual, chief economist of PT Bank Central Asia in Jakarta. The economy’s plight opens the door for more central bank easing, he said, but whether the bank cuts the benchmark rate again will
depend on how the rupiah performs.
Suhariyanto said on Tuesday the statistics bureau did not have an outlook for the next quarter.
“At present to make predictions is not easy because it’s full of uncertainty,” he said. There are “many assumptions and modeling, and not all assumptions are met.”
“The Indonesian economy, in terms of expenditure, is still dominated by household consumption and investment,” Suhariyanto said, adding that maintaining consumers’ purchasing power is paramount.
The government has suspended a cap of 3% of GDP on the budget deficit to fund its virus response and support the economy, forecasting the fiscal shortfall will widen to as much of 5.07% this year.