Global Pandemic to Affect Indonesia's 2020 Economic Prospects, But Recovery Forecasted for 2021 — ADB

News Release | 18 June 2020

JAKARTA, INDONESIA (18 June 2020) — With developing Asia barely growing in 2020, Indonesia’s economy is expected to contract by 1.0% in 2020, according to new forecasts from the Asian Development Bank (ADB). But the country’s economic growth would reach 5.3% in 2021, thanks to stronger household discretionary spending, improved investment climate, and a recovery in the global economy.

“The COVID-19 pandemic has caused significant economic disruption globally and in Indonesia, with adverse impact on jobs and livelihoods, especially among the most vulnerable segments of society,” said ADB Country Director for Indonesia Winfried Wicklein. “As the global economy struggles to recover amid the pandemic this year, timely implementation of policy measures, such as those included under the Indonesian government’s economic recovery program, will go a long way toward helping Indonesia bounce back and safeguard the welfare of households.”

In a supplement to its annual flagship economic publication, the Asian Development Outlook (ADO) 2020 released in April, ADB forecasts growth of 0.1% for the Asia and Pacific region in 2020. This is revised down from the 2.2% forecast in April and would be the slowest growth for the region since 1961. Economic activity in other countries in Southeast Asia, such as the Philippines (-3.8%) and Thailand (-6.5%), is also expected to be hard hit in 2020 before rebounding in 2021.

Restricted trade flows and declining tourism numbers have substantially dampened the economic outlook. Regional economic growth in 2021 is expected to rise to 6.2%, as forecast in April. Gross domestic product (GDP) levels in 2021 will remain below what had been envisioned and below pre-crisis trends.

Indonesia’s economy declined in the first quarter of 2020 to 3.0% year on year. Domestic consumption fell by 2.8% as households reduced discretionary spending, while government consumption expenditure showed signs of a gradual pickup as social services to households were expanded.

Growth in fixed investment also slowed down, but recent investments to improve internet connections, such as the Palapa Ring project, have allowed modern industry and services to continue operating amid mobility restrictions. Sustained demand for palm oil and metal ores partly countered a contraction in exports of services, as well as oil and gas. With governments across the world stimulating recovery of their economies, a quicker rebound in demand for Indonesia’s commodities exports may help lift the forecast.

“While the relaxation of mobility restrictions in early June will help economic activities resume, many uncertainties persist,” said ADB’s Country Economist for Indonesia Emma Allen. “The government’s economic recovery program provides an agile response to the crisis by leveraging technology for efficient delivery and providing opportunities to boost financial inclusion and to strengthen global value chains linkages. We commend the government’s timely efforts to increase investment to support equitable distribution of digital infrastructure, promote research and development, integrate data management, and develop digital talent—all of which are a crucial for strengthening future growth prospects.”

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.