Indonesia鈥檚 economy grew the fastest in more than a decade in the second quarter of 2021. However, this growth will be impeded by the recent surge of COVID-19 infections.
Indonesia鈥檚 economy grew 7.07% in the second quarter of 2021 compared to the same period last year, the highest growth rate in over a decade, the Indonesian Statistics Agency reported on August 5, 2021.
The growth comes after five quarters of economic contractions following the global COVID-19 pandemic 鈥� which saw a decline in economic activity across the world. The sectors transportation, warehousing, as well as food and beverage saw the highest growth in economic activity as the Indonesian government eased its lockdown policy to go along with the country鈥檚 mass vaccination campaign.
Furthermore, as much as Rp 305.5 trillion (US$21.26 billion) has been spent on the government鈥檚 Economic Recovery Program as of July 30 鈥� about 41.02% of the total earmarked COVID-19 response fund of Rp 744.75 trillion. The money went to various programs that include income tax waivers for individuals and corporations, as well as direct cash aids and social assistances to vulnerable citizens.
The economic recovery is also in line with the increase in foreign investments in the second quarter of 2021 as reported by the Indonesian Ministry of Investment, also known as BKPM. The country raised Rp 223 trillion in foreign investments in the April to June 2021 period for a total of Rp 442.8 trillion for the first half of the year. This is a 16.2% increase compared to the first half of in 2020. In quarterly terms, foreign investment rose 19.6%, while domestic investment rose by 12.7%.
Over half of the foreign investment came from Singapore, Hong Kong and China 鈥� Singapore being the main source for global investment as funds are traditionally funneled through the island nation before reaching the rest of Southeast Asia.
The top destinations for foreign investment for the second quarter of 2021 includes the manufacturing sector ($1.8 billion); mining ($0.9 billion); transportation, warehouse and telecommunication ($0.9 billion); Electricity, Gas and Water Supply ($0.8 billion); and housing, industrial estate and office building ($0.7 billion).
Weaker third quarter
It is important to note however that this growth will very likely be stalled by the recent resurgence in COVID-19 cases. Since early June, Indonesia has experienced a staggering rise of COVID-19 infections
with over 50,000 cases identified in a single day in mid-July. This resurgence has led the government to introduce an even stricter form of lockdown measures.
These measures include the closing of shopping centers and restaurants, as well as obliging all non-essential and non-critical sectors to implement a 100% work-from-home policy, though stores serving daily necessities are still allowed to operate under certain time periods. Critical and essential sectors in this regard include the health and utilities sector, as well as certain processing industries
The effect of the lockdown can already be seen through the latest report from IHS Markit, a London-based consultancy firm that provides a monthly report of manufacturing activities across the world. Indonesia鈥檚 Purchasing Manager鈥檚 Index (PMI) fell sharply to 40.1 in the firm鈥檚 July report from 53.5 in June, or below the no-change mark of 50.0. The contraction ended the country鈥檚 eight-month streak of consecutive growth of its manufacturing sector as the uncertainties surrounding the resurgence of COVID-19 cases dampened production and demand.
To counter the resurgence of COVID-19 cases, the country has further increased its economic recovery campaign effort by extending many of the programs that were introduced at the start of the pandemic, such as the aforementioned income tax waives, as well introducing new policies such as waiving added taxes on rental space for retailers. The country鈥檚 vaccination campaign also continues in earnest, with nearly 50 million Indonesians having received their first vaccination and over 22 million their second vaccine out of the targeted total of 208 million.
Reflecting on the growth momentum from the second quarter of 2021, Finance Minister Sri Mulyani expects Indonesia to grow between 4 and 5.7% in the third quarter of the year. She said weaker growth was unavoidable due to the lockdown the government must take in order to contain the COVID-19 pandemic.
鈥淲e are still very cautious especially as there are still sectors disproportionately affected by COVID. On the other hand, there are sectors that are more resistant and we therefore hope that these sectors can stay that way,鈥� she said.