BPS also announced that the economy shrank 2.19 percent yoy in the fourth quarter last year, a smaller contraction than in the year’s second and third quarters, when the GDP fell 5.32 percent and 3.49 percent yoy, respectively.

The previous contractions led the country into its first recession in two decades.

“This still shows improvement, even though it might not be what we hoped for. We still need to evaluate what’s working – what needs to be strengthened – so that economic growth can meet our expectations,” BPS head Suhariyanto said during a virtual briefing on Friday.

Finance Minister Sri Mulyani Indrawati said in December 2020 that the government expected a GDP contraction of between 1.7 and 2.2 percent that year, driven by shrinking household spending, which accounts for more than half of Indonesia’s GDP.

This was a downgrade from the September 2020 forecast, when the government projected an economic contraction of between 0.6 and 1.7 percent.

The change in forecast was based primarily on a rise in COVID-19 cases ahead of Christmas and New Year, as well as tighter restrictions that were expected to impact spending. The government made concerted eff orts to ban events likely to gather crowds from Dec. 18 to Jan. 8 to prevent a spike in COVID-19 transmission during the holiday season.

By Dec. 21, the country had seen more than 671,700 cumulative COVID-19 cases, a figure that had worsened to more than 1.1 million cases by Thursday.

The Asian Development Bank (ADB) and World Bank previously projected that Indonesia’s economy would contract 2.2 percent in 2020, a revision of their previous forecasts of 1 percent and 1.6 percent contractions, respectively. BPS data shows that household spending, which accounts for more than 50 percent of GDP, fell 2.63 percent, led by a spending slump in transportation, restaurants and hotels.

This is reflected in declines in retail sales, goods imports and wholesale vehicle sales. Meanwhile, investment shrank 4.95 percent as businesses cut back sharply on investment in machinery and other products.

Exports and imports plunged 7.70 percent and 14.71 percent respectively last year, reflecting the downturn in global trade and domestic demand resulting from the pandemic.

However, government expenditure grew 1.94 percent last year, less than the 3.26 percent growth the year before, despite a boost in spending on social assistance and goods and services procurement as part of eff orts to fi ght the impacts of the pandemic.

“Indeed there are challenges, but many indicators show improvements,” said Suhariyanto. In a research note by Moekti P. Soejachmoen, M. Ikbal Iskandar and Sella F. Anindita published in February, Danareksa Research Institute estimated that the economy had shrunk 2.33 percent yoy in 2020, and it expected a 2.94 percent yoy contraction in the year’s fourth quarter.

“The weak economic recovery reflects sluggish household spending amid the relatively high realization of social protection programs, which have led to significant growth in government spending,” the note read.

The study also stated that household spending was expected to have dropped 3.41 percent yoy in 2020.

“Weak household spending was caused by limited activities due to the implementation of large-scale social restrictions [PSBB] in early October 2020, which were followed by transitional PSBB until the end of December 2020,” the note read.

Echoing BPS, the note stated that the weakened spending appeared in auto sales, loans and retail.

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