Indonesian Economy Projected to Shrink 3.9 percent If Second Wave Hits

JAKARTA, KOMPAS.com – The Organization for Economic Cooperation and Development (OECD) warns that the Indonesian economy could contract by 2.8 to 3.9 percent if the country experiences a second wave of Coronavirus infections.

The figure is lower than estimates made by the Indonesian government which expects the economy to contract by only 0.4 percent.

Under the worst-case scenario, the Indonesian economy is predicted to grow by 2.4 percent.

Also Read: Indonesia Coronavirus Cases Break Three Records in One Week

OECD’s Chief Economist Laurence Boones explained that there are two possible scenarios in which each is based upon the Indonesian government’s management of the Coronavirus pandemic.

As of 11 June, Indonesia's Coronavirus cases have surpassed 35,000 confirmed cases while daily new infections have steadily increased.

This comes amidst the Indonesian government’s push for more aggressive testing and contact tracing.

Previously, President Joko Widodo (Jokowi) strived to meet 10,000 daily tests but has recently doubled the daily testing rate.

Also Read: Indonesia’s Coronavirus Death Toll Now At 2000

Should Indonesia avoid the second wave of infections, then the first scenario projects the Indonesian economy to contract 2.8 percent with domestic consumption shrinking by 3.1 percent.

The country’s current account deficit is projected to reach 2.8 percent. Exports are predicted to drop 5.9 percent, while imports are seen dipping 7.4 percent.

“Weak GDP growth during the first quarter of 2020 is caused by weak household consumption and investment,” explained Boone in the OECD report received by Kompas.com on Thursday, 11 June 2020.

The second scenario estimates the Indonesian economy shrinking by 3.9 percent due to the second round of infections.

This scenario would mean added pressure on the country’s imports and exports. Under the second scenario, exports are expected to contract 7.4 percent while imports are predicted to post a negative 9.1 percent.

Indonesia’s GDP grew 2.97 percent year on year during the first quarter of 2020 as reported by Statistics Indonesia.

The figure is weaker than the government and Bank Indonesia’s projections of approximately 4 percent.

Short-term forecasts

The OECD predicts improved economic conditions in which the Indonesian economy could grow around 2.8 to 5.2 percent in 2021.

The World Bank expects the Indonesian economy to grow by 4.8 percent.

According to the OECD, the second quarter will witness a steep economic contraction in line with rising unemployment.

The Indonesian economy is expected to rebound during the third quarter.

The Indonesian government has undertaken measures to mitigate the Coronavirus pandemic while also working to boost consumer confidence. (Writer: Mutia Fauzia | Editor: Sakina Rakhma Diah Setiawan)

Source: https://money.kompas.com/read/2020/06/11/150800226/oecd--ekonomi-ri-bisa-minus-3-9-persen-jika-ada-gelombang-kedua-corona