Indonesia faces recession as virus batters economy

Finance minister has warned that SE Asia biggest's economy is set to contract 4.3% in the second quarter and may shrink again in Q3

by AFP
Indonesia cuts rates as virus batters economy
Healthcare workers wear protective suits when collect blood sample from the resident during coronavirus rapid test in the city of Salatiga, Central Java, Indonesia on July 18, 2020. Photo: Galih Yoga/ NurPhoto via AFP.

Indonesia's central bank cut interest rates last Thursday for the fourth time this year, with Southeast Asia's biggest economy battered by the coronavirus pandemic.

Policymakers at Bank Indonesia reduced the key lending rate by 25 basis points to 4%, days after the government warned of a looming recession.

Central bank governor Perry Warjiyo said the latest rate cut was a "further step" to boost the struggling economy, adding that there were signs of a recovery as a stimulus plan kicks in and virus restrictions are eased.

"But we're not back to pre-pandemic levels," Warjiyo warned.

Research house Capital Economics said it expected the bank to move again in the coming months.

"The main reason we think further easing is likely is the poor outlook for the economy," it said, adding that output remained "very weak".

Finance minister Sri Mulyani Indrawati has warned that Indonesia's economy is set to contract 4.3% in the second quarter and shrink again in the July-September period.

Two consecutive quarters of negative growth would mark Indonesia's first recession since the 1998 Asian financial crisis.

$48-billion stimulus package

Indonesia has announced a stimulus package worth more than $48 billion to help offset the impact of coronavirus, which forced a large-scale shutdown that hammered growth, including in the key tourism sector.

The Southeast Asian archipelago, home to nearly 270 million people, has been easing movement restrictions in a bid to head off economic collapse.

But Indonesia's Covid-19 infections are mounting as cases top 80,000 with over 3,800 deaths.

The true scale of the public health crisis is widely believed to be much bigger in a country with one of the world's lowest coronavirus testing rates.