(Bloomberg) — Indonesia is setting its sights on a sharp turnaround starting this quarter as it assembles more stimulus programs to lift stubbornly weak domestic demand.Gross domestic product declined 0.74% in the first quarter from a year ago, the statistics bureau said Wednesday, worse than the median estimate of -0.65% in a Bloomberg survey of economists. Still, it represented an improvement from the 2.19% contraction in the final quarter of 2020.Southeast Asia’s largest economy should return to growth this quarter as the government readies tax and sales measures to support the retail sector, Coordinating Minister for Economic Affairs Airlangga Hartarto said in a briefing. GDP is expected to expand 6.9%-7.8% in the second quarter period, a pace that would be its fastest since 2008, according to Bloomberg data.“The trend of economic recovery is toward positive growth,” Hartarto said. “The curve is V-shaped, as seen in many other countries.”“Until we return the consumer confidence that will revive demand, the risk will be on the downside,” said Enrico Tanuwidjaja, an economist at PT Bank UOB Indonesia in Jakarta. He added that he’d be downgrading his full-year outlook because of the first-quarter numbers.The country’s benchmark stock index pared the day’s gains to 0.2% after the GDP data were released. The rupiah was little changed at 14,435 to the dollar.“The virus resurgence at the start of the year is likely to have put a dent in consumption, even though there have been some signs of nascent recovery more recently,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp in Singapore. “Bank Indonesia is most likely going to continue to keep its policy rate unchanged, focusing on pushing for more forthright transmission of its previous rounds of rate cuts by the banking system.”Main DriversThe government recently maintained its outlook for 4.5%-5.3% GDP growth for 2021, expecting consumption around Eid celebrations in April-May to boost growth in the second quarter. On Tuesday it cut its forecast for 2022, now expecting growth of 5.2%-5.8% next year, down from an earlier projection of 5.4%-6.0%.What Bloomberg Economics Says…“Indonesia’s recovery should continue to advance in 2Q in year-on-year terms, but more quarterly contractions this year can’t be ruled out given the higher infection rate of Covid-19 variants now circulating alongside relatively slow inoculations. We still expect a muted recovery this year, with growth coming in well short of the central bank’s 4.1-5.1% forecast range.”– Tamara Mast Henderson, Asean economistSolid performance in trade and investment have been the main growth drivers early this year. Exports and imports bested estimates, while foreign direct investment climbed to a three-year high, mostly in provinces outside the main growth engine of Java.“The process of economic recovery will differ between provinces and sectors,” Suhariyanto, head of the country’s Statistics Office, said in announcing the GDP data. “Sectors that are highly dependent on public mobility, such as transportation and accommodation, will take longer to be able to pick up.”While factory activity and consumer confidence have shown a steady increase, core inflation and retail sales remain subdued as movement curbs limits household spending, which accounts for almost 60% of the economy.Other details from Wednesday’s release:The economy shrank 0.96% from the previous quarter on a non-seasonally adjusted basis, worse than the 0.85% drop forecast by economistsSectors that expanded the most in the first quarter, in year-on-year terms, include information and communications, +8.72%; water supply, +5.49%; health services, +3.64%; and agriculture, +2.95%Biggest decliners were transportation and warehousing, down 13.12%; accommodation, food and beverage, -7.26%; company services, -6.1%; and other services, -5.15%Private consumption fell 2.23%, while government spending rose 2.96% and gross fixed capital formation declined 0.23%Exports rose 6.74% from a year ago. Imports rose 5.27%Vaccine DriveAs many as 12.7 million Indonesians had been inoculated as of early May, though that’s still a small percentage of the country’s 270 million population. Private companies will begin inoculating workers once the government sets a selling price on vaccines.“The high frequency mobility data we track from Google suggest that government restrictions and social distancing remain a major drag on activity,” Gareth Leather, senior Asia economist at Capital Economics Ltd., wrote in a research note.By maintaining restrictions even as infections decline, “the government is making a clear trade-off to get ahead of the infection curve, because the cost of future lockdowns will be even worse for the economy,” UOB’s Tanuwidjaja said. “This is necessary to get a more sustainable recovery in coming quarters.”(Recasts lead and adds minister’s comments in third and fourth paragraphs.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.