Indonesia expects economy to shrink by 1.7-0.6% this year

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Indonesia recently revised down its 2020 gross domestic product (GDP) outlook expecting a steeper contraction because of the fallout of the COVID-19 pandemic. It is also trying to raise spending to absorb the negative impact. Its economy is expected to shrink by 1.7-0.6 per cent on an annual basis this year, according to finance minister Sri Mulyani Indrawati.

Addressing a virtual news conference, she said her previous expectation was a 1.1-0.2 per cent contraction in growth.

The forecast took into account a new third-quarter GDP outlook of a contraction of 2.9 per cent to 1 per cent, from the previous range of 2.1 per cent to flat growth, and potential negative growth in October-December, the minister said.

Indonesia’s GDP shrank for the first time since 1999 in April-June by 5.32 per cent.

“Although we saw improvement in the third quarter and we could see the economy recovering … it was still very early, fragile and must be guarded,” she was quoted as saying by media reports from the country.

The government had spent 56 per cent of its 2020 budget in January-August, up 10.6 per cent from last year, while state revenue had fallen by 13.1 per cent, with corporate tax payments under pressure, official data showed.

As of August, the fiscal deficit was 3.05 per cent of GDP. The full year deficit outlook may be wider than the previously expected 6.34 per cent and the government would monitor its implications for debt issuance, Luky Alfirman, the finance ministry’s head of financing department, said.