The impact of COVID-19 has been felt in many facets across the globe. The economy is just one of the areas that have been hit hard. Many places in the world that had seen substantial growth in the years prior to the COVID-19 outbreak have since witnessed that growth stall. When it comes to Indonesia, Southeast Asia’s largest economy, this decline has been felt across all niches of business.

The economic repercussions of the pandemic on Indonesia were  so strong that the area saw its first decline since the Asian financial crisis over two decades ago in 1998. Both business activities and consumption were affected by this contraction, and the full-year decline has led to battered businesses and growing unemployment. 

A closer look at the worst-hit sectors

All sectors were collectively affected by the decline; however, some faced more hardships than others. Reports say that Indonesia’s Gross Domestic Product dropped by 2.19% from October to December of 2020, compared to the same period the year prior.  The news of Indonesia’s economic recession comes as little surprise, as the country was hit inarguably in Southeast Asia, with the highest number of COVID-19 cases and deaths in the region. Hence it is safe to say that this devastation did inevitably spill over into the economy.


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The sectors that were the hardest hit by the economic downturn were household spending, transportation, and tourism. Household consumption makes up half of the GDP in Indonesia, and that sector saw a 3.6% year-on-year drop in the fourth quarter. Although government spending went up by 1.8%, the growth was modest compared to the previous quarter’s 9.8% increase.

Vaccination efforts and the economy

With the overall drop in Indonesia’s economy, the government is taking steps toward rebuilding what was lost in 2020 and the first step in their plan is vaccinations. In January of 2021, the Indonesian government launched one of the world’s largest COVID-19 vaccination campaigns. The campaign was designed to get the population inoculated as quickly as possible to help save lives. It was also going to help the country and its economy by giving businesses a safe opportunity to reopen. However, this attempt to help the citizens and rebuild the economy was thwarted by unforeseen issues such as a lack of trust, storage, and disinformation.

Those glitches that caused a stall in the campaign have made it a less than promising start the government had hoped it would be. With the population being vaccinated slowly, the reopening of the economy remains at a standstill.

The first quarter of 2021 saw another drop in the GDP, though this time it was only a 0.74% decline, much smaller compared to last year’s numbers. The improvement may be modest, but it trends towards positive growth. According to data from Bloomberg, the second quarter should see an expansion of 6.9% to 7.8%. This fast pace hasn’t been seen since 2008. 

How can tech startups help the rebuild?

The Indonesia startup scene has been growing in recent years, especially in the tech sector. Prior to the pandemic, the country was home to a number of exciting startups, including the ride-hailing company GO-JEK, the travel booking company Traveloka, and the online marketplace Tokopedia. The industries these companies were part of felt the economic decline immensely. However, that doesn’t mean that these startups, and others like them, can’t play roles in rebuilding the economy.

This is especially true since the renewal of Indonesia’s 1000 Digital Startup Movement. The government initiative came to fruition in 2016 and is designed to encourage digital pilot company development in the area to help Indonesia become a Digital Energy in the region.

The program itself is being revived to focus on incubation activity and a wider reach. When the initiative was first launched, it included only ten countries, but five more will be added in the next iteration. According to reports, the digital economy in Indonesia is expected to reach $130 billion US in the coming years. Ultimately, the government has launched the initiative in the hopes that startups and the digital economy could help regain the growth they had prior to the pandemic.

The future outlook for regaining growth

Eid celebrations in April and May were expected to help drive a bump for the economy through 2021, and economists are hopeful that the second quarter will continue to advance in year-on-year terms. Nonetheless, they are not ruling out any declines in growth completely, especially with a higher infection rate and new COVID-19 variations making their rounds. According to Bloomberg economics, the recovery that’s projected this year will be muted, especially if the performance of trade and advancements continues to be as solid throughout the second quarter as it was in the early months of the year.

With the Indonesia economy facing the repercussions of COVID-19, a few steps need to be taken to make the correction back to a healthy status. When it comes to Indonesia and the pandemic, it has been one of the hardest-hit areas, but with a focus on a digital economy and vaccinations, established companies and startups can begin to collaborate towards a more sustainable and resilient future.