Indonesia’s finance ministry flags recession risk as spending hits a snag; auto sales plunge 96% in May

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JAKARTA (Reuters): Indonesia’s economy faces the risk of recession this year due to the Covid-19 (coronavirus) pandemic, its finance minister said on Tuesday (June 16), adding that only a small amount of the government’s billion dollar budget to fight the crisis had been doled out.

Sri Mulyani Indrawati told an online briefing South-East Asia’s largest economy was expected to shrink in the April-June quarter by 3.1% from a year earlier – marking the first contraction since 1999.

The economy could also contract in the third quarter before returning to growth in the final three months of 2020, she said. However, GDP could also be flat in July-September quarter, which would mean the economy avoids a technical recession.

GDP expanded 2.97% in the first quarter.

“We’re preparing for all possibilities so that the corporate sector and then the financial sector do not get hit by the domino effect of this Covid-19,” she said. “All while we’re praying there is no second outbreak.”

The minister said the government had only spent a fraction of its pandemic response budget, including less than 2% of allocations for public health and 7% on incentives for businesses. It had disbursed 27% of its social protection programmes, she said.

Indrawati said the programmes were new and there had been challenges distributing cash assistance due to problems such as overlapping data.

She put the size of the 2020 stimulus at 695.2 trillion rupiah (US$49.6 billion), slightly more than her previous estimate.

Her baseline outlook for 2020 GDP growth remained between -0.4% to 2.3%, but she said growth looked more likely to be within a range of 0% to 1%. A steep recovery was expected in 2021, with GDP growth projected at 8.2%. The economy expanded 5% last year.

The government ran a budget deficit of 1.1% of GDP as of the end of May, data showed, significantly below the 6.3% expected for the whole year. It had spent 843.9 trillion rupiah in the first six months, or 31% of the amount targeted for 2020.

Meanwhile, car sales in Indonesia plunged 95.8% in May from a year earlier to 3,551 units, industry association data cited by the country’s largest auto distributor PT Astra International showed on Monday.

May sales were also less than half the 7,868 units sold in April when sales were down 90.6% from a year earlier due to movement curbs imposed to contain the spread of the coronavirus.

indonesia’s car market is dominated by Japanese brands, with Toyota and Daihatsu usually leading sales, but Mitsubishi and Suzuki led in May.

But Astra, which controls about half of the indonesian car market, saw signs of an improvement in June after selling only 1,102 cars domestically in May, down 97.6% from a year earlier.

“In June, we’ve seen some pretty good movement, an increase compared with movement in May,” said Djony Bunarto Tjondro, who was appointed as new president direct at the annual shareholders’ meeting on Tuesday.

Astra sold 134,649 cars domestically in January-May, down 40.6% from a year earlier. – Reuters

2020-06-16 02:07:00

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