Covid-19 remained the largest challenge for the Indonesian economy in 2021. In particular, Covid-19 case numbers hit a new high of about 50,000 cases per day in mid-July. In response, the government increased the contact tracing and testing of suspected positive cases, expanded its Covid-19 vaccination drive and introduced stricter mobility and activity restrictions (PPKM Darurat/PPKM Levels 1–4). By the end of October, more than 57% of the target population had received at least one dose of a Covid-19 vaccine. The economy also improved in the first half of 2021. Building on the trough in GDP in the second quarter of 2020, economic growth returned in the second and third quarters of 2021 after contractions in the previous four quarters. Macroeconomic circumstances were also generally favourable, though significant longer-term risks remain. In terms of real wages, however, the recovery tended to benefit the formal sector and well-educated workers, while real wages in the informal sector and for low-educated workers continued to decline. At the same time, the rise in Covid-19 cases and the implementation of stricter mobility and activity restrictions have lowered expectations for economic growth in the second half of 2021. To mitigate the social and economic impact of the pandemic, the government has re-expanded its social protection programs. We find that these programs have mitigated the impact of Covid-19 on the poverty rate by four percentage points, or by about three-quarters—poverty increased to nearly 10%, rather than the 14% that would have been likely without the increased social assistance. The possibility of a K-shaped recovery implies that special social protection programs must continue as the economy recovers from the pandemic, to ensure that the poor and vulnerable are not left behind.