Indonesia: COVID-19: Economic and Food Security Implications (4th Edition)

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Key Messages & Recommendations

Economic and Employment Trends

● The Indonesian GDP continued to contract for a second quarter in a row due to the pandemic, signifying the first recession in two decades. In quarter 3, the national GDP shrank by 3.5% on a year- on-year basis. In comparison to Q2 2020, the economy has grown by 4.7%, indicating a positive move towards recovery. On a quarter-to-quarter basis, all economic sectors have experienced positive growth. The Ministry of Finance estimated that the annual 2020 growth would be in the range of -0.6% to -1.7%, while the IMF revised its projections from -0.3% to -1.5%, the World Bank projected a deeper contraction at -2.0%, and the ADB revised its growth forecast from -1% to -2.2%.

● The annual inflation rate increased to 1.6% in November 2020,recording an increase for the third consecutive month following consistent decline since March 2020. However, this may not necessarily indicate recovering purchasing power. The increase has been primarily driven by rising food prices due to the start of the wet season. The recent relaxation of social and travel restrictions combined with the end-year holiday season are likely to have contributed to higher, albeit still low, consumer spending.

● The employment status of over 29 million people, or 14% of the working-age population (15 – 64 age group) has been affected by the pandemic. Of this total, 62% (18 million) are male. In August 2020, the national unemployment rate stood at 7%, (9.8 million unemployed workers). This represents an increase of 2.7 million persons in comparison to August 2019 which had an unemployment rate of 5.4%. Coupled with increasing underemployment (from 6.4% to 10.2%) and part-time employment (from 22.5% to 26%), as well as declining wages (-7%) between August 2019 and August 2020, the pandemic is likely to push more vulnerable people into poverty.

● Both male and female employment were impacted by the pandemic, albeit in different ways. Between February and August 2020 men were more likely to become unemployed, to temporarily not work, or to experience reduced working hours.Women were more likely to exit the labour force.

● The agriculture sector has served as a buffer during the pandemic, by absorbing labour released by other sectors. However, wages in agriculture are among the lowest nationally, well below the minimum cost for decent monthly living. The number of workers in the agriculture sector increased by 2.8 million between August 2019 and August 2020, while total employment in the country decreased.

● Many of the new poor - resulting from COVID-19 impact - are likely to live in congested urban settings. In the urban centres the working poor are employed in the informal sector. They are the most affected by large scale social and mobility restrictions and are excluded from employment based social protection systems. The World Bank estimated that for the first time since 2006, extreme poverty (based on USD 1.9 per day) is likely to increase from 2.7% in 2019 to 3% in 2020.