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(Bloomberg) — Indonesia’s economy capped its first annual contraction since the 1998 Asian financial crisis as the region’s worst coronavirus outbreak continued to sap activity through the fourth quarter.

Gross domestic product in the final three months of 2020 fell by 2.19% from a year earlier, the statistics bureau said Friday. The median estimate in a Bloomberg survey was for a contraction of 2.3%. For the full year, GDP slipped 2.07%, in line with a 2.1% drop economists forecast.

© Bloomberg Bump in the Road

The rupiah fell 0.2% to 14,045 to the dollar as of 9:56 a.m. Jakarta time, while the benchmark stock index added 0.2% after earlier losing as much as 0.3%.

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Southeast Asia’s largest economy has struggled to find a clear path out of recession, as looser curbs on movement during much of the fourth quarter hastened the virus spread yet failed to spur private consumption. Covid-19 infections and deaths continued to rise by record numbers in January, prompting more stringent anti-virus measures and raising doubts about whether Indonesia could return to growth this quarter.

While Friday’s GDP figures were broadly in line with expectations, “the degree of decline suggests that the all-important private consumption remains bogged down by ongoing pandemic resurgence,” said Wellian Wiranto, economist at Oversea-Chinese Banking Corp. in Singapore. “We are hopeful for growth to return to positive territory in the first quarter.”

Latest economic indicators point to still-tepid demand in a nation where private consumption accounts for about 60% of GDP. Core inflation notched a historic low in January, and retail sales continue to fall while consumers remain pessimistic.

© Bloomberg Core inflation falls to record low as household demand remains sluggish

Highlights from the fourth-quarter GDP data Friday include:

Private consumption fell 3.61% year-on-year, continuing its narrowing from the second quarterGovernment spending rose 1.76%, slower than 9.76% seen in the third quarterExports shrank 7.21%Gross fixed capital formation dropped 6.15%

“While domestic high-frequency indicators point towards a cautious start to 2021,” said Radhika Rao, economist at DBS Bank Ltd., “a stronger net exports balance, helped at the margin by commodity price upcycle, and the government’s decision to scale up stimulus spending, presumably backed by frontloading of public expenditure, are likely to be key counterbalancing factors.”

The government has scaled stimulus as it looks to achieve 5% GDP growth this year. It raised the economic recovery budget to 619 trillion rupiah ($44 billion), 66% more than its initial estimate, which will fund tax breaks, cash subsidies and free vaccines, among other items.

Bank Indonesia has pledged to keep monetary policy loose, saying it sees no “immediate concern” over inflation. Governor Perry Warjiyo said in January that monetary authorities have room to cut interest rates further and are weighing further action.

Indonesia’s Financial System Stability Committee is working on a policy package that aims to overcome the credit crunch and lift bank lending to businesses. Credit growth fell 2.4% in 2020 despite liquidity injections from the central bank and the government’s credit-guarantee program.

The economy shrank 0.42% from the previous quarter on a non-seasonally adjusted basis, worse than the 0.22% drop forecast by economists.

(Updates with market reaction in third paragraph, analyst comment in fifth paragraph)

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