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ECONOMIC UPDATE - GDP - First contraction since 1999



Anticipated contraction

Dip in Indonesia economy has just been registered in 2Q20 at its sharpest pace since 1999 where in 1Q99 it grew by -6.13% YoY right after Asian Financial Crisis and political turmoil in 1998. Indonesia economic growth plunged sharply in 2Q20 that contracted by 4.19% QoQ or 5.32% YoY (vs. +2.97% YoY in 1Q20). The growth is way lower than consensus estimate of -4.73% YoY and ours of -4.03% YoY. The contraction resulted -1.27% YoY of growth in 1H20. However, given the relaxation of large scale social restriction (PSBB) in Jun-20, economic performance should be better in 3Q20 driven by industries that start to reoperate and higher household consumption. The strong belief of near future economic recovery while the anticipated contraction seemed already  in by market caused a excitement resulting to  stock market  index edged up by about 1%  upon today’s GDP data release.


All components of expenditure drop

Statistics Indonesia office (BPS) recorded 2Q20 GDP is equivalent to Rp3,687 tn (USD253.4 bn) of nominal GDP and Rp2,589 tn (USD177.9 bn) of real GDP. All of components of expenditure in GDP contracted where household consumption is still the biggest contributor by 57.8% of GDP (-5.51% YoY) and it played as it brought -2.96% to total GDP contraction. The second biggest contributor is GFCF (investment) where it contributed 30.6% of GDP (-8.61% YoY). The third biggest contributor is government expenditure where it contributed 8.67% of GDP (-6.90% YoY). Non-profit institutions serving households (LNPRT) contributed by 1.36% of GDP (-7.76% YoY). Export and import grew at -11.6% YoY and -16.9% YoY, respectively.


Pandemic opens opportunity to some sectors

The pandemic brings some advantaged and disadvantaged sectors come to the surface. Some advantage ones (based on its contribution towards the total growth) are Information and Communication (+0.58%) and Agriculture, Forestry and Fishery (+0.29%). Information and Communication sector reaped advantage with 3.44% QoQ (10.8% YoY) of growth as PSBB made most of people had to stay at home and utilized ICT as they needed to do lot of thing online. Agriculture, Forestry and Fishery displayed a high growth at 16.2% QoQ (2.19% YoY) as the shift of main harvest moon happened from Feb-Mar in 2019 to Mar-Apr in 2020. Besides, related to the plunge in imports, some regions got to fulfill the demand of agriculture products from another regions. Thus, the pandemic increases regional interdependence and this is the positive side of the pandemic as Indonesia can fulfill the needs domestically to some extent.


Pandemic drags down more sectors instead

However, the disruption brings worse impact to the majority of sectors in 2Q20. Both Transportation and Warehouse (-29.2% QoQ, -30.8% YoY) and Accomodation and Food and Beverages (-22.3% QoQ, -22.0% YoY) were the biggest laggards in 2Q20. PSBB put mobility to a halt thus it dragged down transportation related business. However, transportation made a quick jump in Jun-20 where all transportation components rose such as international flight (54.7% MoM), domestic flight (791.4% MoM), train passanger (69.4% MoM) and passanger ship (134.1%). We expect a better performance from transportation sector in the 2H20.


The worst has passed

With the gradual improving indicators right after PSBB was eased, Indonesia has passed the worst condition related to Covid-19 under assumption there will be no other PSBB. With some signals from government statements, PSBB is unlikely to be implemented again in 3Q20 although the Covid-19 cases is rising. Until the end of Jul-20, the realization of pandemic-related stimulus has only achieved around Rp136.3 tnor 19.6% of total allocation of Rp695.2 tn, we see realization in 2H20 will help the economy to grow stronger.  Without ruling out the possibility of recession, we are still reviewing our growth forecast at 0.92% YoY in 3Q20. Due to the 2Q20 GDP result is lower than our estimation, we may revise down the growth estimation but still maintaining higher growth forecast of 4.38% YoY in 2021.