GDP growth is projected to resume at around 5% annually in 2021 and 2022. The economy has been slowly recovering since mid-2020 thanks to policy support, gradual reopening and favourable global conditions. The second wave of the virus and the slow pace of inoculation are preventing a faster normalisation of activity. Lingering concerns about the pandemic weigh on consumer and business confidence and prevent domestic demand to return to trend levels. External demand for commodities such as coal, palm oil and rubber supports growth, with positive prospects thanks to the signing of RCEP (Regional Comprehensive Economic Partnership) and other trade agreements.
The impact of the recession is bound to persist for a long time, especially for youth who have suffered from a year-long school disruption and confront difficult labour market conditions. Containment measures have slowed but not halted the pandemic. The policy priority is to protect citizens, most of whom work in the informal sector and face difficulties in accessing social services, from sudden further shocks. Fiscal and monetary policies should continue to seek synergies to support the recovery, although a credible normalisation path should be announced. In the longer run, improving well-being and growth requires to boost human capital formation.