The finance minister said weak consumption in the upper-middle class had hindered the economic recovery and that bringing back Indonesian consumer confidence would be crucial.

“The confidence of upper-middle-class consumers in Indonesia is an important component for businesses to continue to survive and recover,” she said at a forum held by Bloomberg on Wednesday. “It is very important to restore confidence, but it will really depend on whether the pandemic can be handled or a vaccine can be distributed equally.”

Indonesia has fallen into recession for the first time since the 1998 Asian financial crisis, ending two decades of economic expansion. The economy shrank 3.49 percent in the third quarter after contracting 5.32 percent in the second quarter, making for the two consecutive quarters of economic contraction that define a recession.

Household spending, which accounts for more than half of the gross domestic product (GDP), fell 4.04 percent – less than the 5.52 percent contraction booked in the second quarter – led by a slump in transportation, restaurant and hotel spending as COVID-19 limited social activity.

Indonesian consumers also became more pessimistic in September. The Bank Indonesia (BI) consumer confidence index weakened to 83.4 in September from 86.9 in August. An index above 100 reflects general hopefulness, while a value below 100 signifies pessimism.

Consumer expectations about business expansion, job availability and income over the next six months weakened, according to the survey.

“In September, consumers’ perception of economic conditions weakened from the previous month and remained in the pessimistic zone, in line with the large-scale social restrictions [implemented by Jakarta], which lowered economic activity and limited people’s income,” the central bank wrote.

As a result, more consumers are saving their income. Banks’ third-party funds expanded by 12.88 percent in September from one year ago to reach Rp 6.38 quadrillion (US$454.2 billion), while loan disbursement stagnated in the same month.

Several economists have raised concerns over the phenomenon, calling on the government to ramp up the virus response to restore confidence.

“The [BI] survey revealed that consumers remain worried about the economic conditions over the next six months, meaning that households are likely to continue preferring savings over spending,” Fitch Solutions wrote in a note dated Nov. 6.

“The negative impact of the global pandemic on the Indonesian economy is mostly behind it, and the country is now on track towards a recovery. Nevertheless, the pandemic itself is far from over […] as such, we caution that the recovery in activity could be bumpy and uneven.”

Fitch Solutions expects the country’s economy to contract 1.3 percent in 2020 before rebounding by 6.1 percent next year, as the country may benefit from improvements in global economic activity. At the same time, the unemployment rate is expected to peak close to 9 percent over the coming months as more people may lose their jobs.

Indonesia’s open unemployment rate surged to 7.07 percent in August, its highest level since 2011, from 5.23 percent in the same month last year, with the pandemic causing some 2.67 million people to lose their jobs, Statistics Indonesia (BPS) announced earlier this month.

Fitch Solutions said the risk to the economic outlook might depend on the trajectory of the pandemic.

“If a vaccine is made available to emerging markets sooner than the second half of 2021, then upside possibilities will emerge in our growth forecast,” they said. “In contrast, if the vaccine development faces severe delays and nations across the world are required to impose strict lockdowns once again, then severe downside risks will emerge in our 2021 forecast.”

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