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Rumour Has it, Indonesia is Ready to Enter Economic Recession

Rumour Has it, Indonesia is Ready to Enter Economic Recession

It’s been over two decades since Indonesia last experienced an economic recession. This could once again occur with the country’s current state of handling the coronavirus pandemic.

Every day, more additional new cases are detected in various regions, even breaking records of up to 4,000 cases per day – recorded in mid-September 2020. More deaths are being identified as well. At this point, the Governor of DKI Jakarta, Anies Baswedan, has applied an emergency brake to implement tighter large-scale social restrictions (PSBB) in the capital, while still allowing businesses to operate under certain conditions.

The pandemic that continues to infect Indonesia has made the Organisation for Economic Co-operation and Development (OECD) provide a very bad forecast for Indonesia’s economy. Recently, a report entitled “Living with Uncertainty” predicts that the country’s GDP will shrink by 3.3 percent this year.

Efforts to save the Indonesian economy from recession by providing fiscal stimuli through tax relaxation, social assistance and budget allocations to the public health sector cannot withstand the strong pressures of the pandemic, which has led to the collapse of the domestic economy. This includes the continuous upgraded fiscal stimulus from April 2020, which was Rp405.1 trillion, to Rp641 trillion in May. Even so, it’s unable to prevent Indonesia from recession. Indonesia’s economic growth in 2020 is predicted to continue to contract due to the pandemic.

Last June, when the World Bank released its report, entitled “Global Economic Prospect”, this Washington DC-based financial institution predicted that Indonesia’s economic output would increase by zero percent – in other words, not grow at all. At the same time, another financial institution that was also formed by the 1944 Bretton Wood agreement, the IMF, even predicted that Indonesia’s economy would contract by 0.3 percent.

The forecasts about economic contraction throughout 2020 that’s dragging Indonesia to the brink of recession is supported by Finance Minister Sri Mulyani and Coordinating Minister for Economic Affairs Airlangga Hartarto, who have also predicted that Indonesia’s economy will be negative this year.

“Negative territory (GDP) is in the third quarter and will probably last until the fourth quarter. Indonesia’s GDP is estimated to be minus one to 2.9 percent. Even the contraction can continue into the fourth quarter. However, we will try to get close to zero,” said Sri Mulyani to CNBC Indonesia. For the full year, Sri Mulyani projects that Indonesia’s GDP will shrink 0.6 to 1.7 percent.

Airlangga Hartarto’s prediction, on the other hand, is far more appalling than conveyed by the Finance Minister. “The range of economic growth in the third quarter is minus three to minus one percent,” said Airlangga. Hence, the losses in the third quarter for the Indonesian economy in 2020 are, according to Airlangga, not as deep as the second quarter, which fell by minus 5.32 percent.

The third-quarter economic prediction of 2020, based in September 2020, is minus 2.9 to minus one percent. If there are two consecutive negative economic quarters or contractions, Indonesia will enter a technical recession. Based on data from Trading Economics, 45 other countries are officially in recession:

  • Albania
  • Angola
  • Argentina
  • Austria
  • Bahrain
  • Barbados
  • Belgium
  • Belize
  • Brazil
  • Canada
  • Ecuador
  • Finland
  • Germany
  • Greece
  • Guiana
  • Hong Kong
  • Iran
  • Italy
  • Japan
  • Latvia
  • Lebanon
  • Lithuania
  • Macau
  • Mexico
  • Mongolia
  • New Zealand
  • Palestine
  • Peru
  • Portugal
  • Saudi Arabia
  • Singapore
  • Slovakia
  • South Africa
  • Spain
  • Sudan
  • Switzerland
  • Thailand
  • The Czech Republic
  • The Philippines
  • The United Kingdom
  • Tunisia
  • Ukraine
  • Venezuela

The third-quarter economic prediction of 2020, based in September 2020, is minus 2.9 to minus one percent. If there are two consecutive negative economic quarters or contractions, Indonesia will enter a technical recession.

Chief Economist of PT Bank Mandiri Tbk Andry Asmoro revealed to Detik News that the Indonesian economy, in the first quarter of 2020, slowed down significantly to the level of 2.97 percent after the first case of COVID-19 appeared in Indonesia. “The economic growth projection in the third quarter is predicted to remain in negative territory, but with an improving direction compared to the second quarter of 2020,” said Andry. He revealed that this is in line with the dynamics of the global economy in which many countries in the world have also entered recession, except for Vietnam and China which are still recording positive growth.

“However, the recession experienced by Indonesia is not expected to be as deep as regional countries such as India, the Philippines, Malaysia, Thailand, and Singapore, as well as developed countries in the European region and the United States,” he explained to Detik News.

Sectoral economic developments in the third and fourth quarters are overshadowed by the risk of PSBB impact on the capital. By sector, services such as trade, transportation, hotels, restaurants, and corporate services will experience a relatively slow recovery from the original estimate due to the increase in COVID-19 positive cases. Likewise, for the manufacturing sector. The recovery follows the general pattern of the national economy because it is very dependent on improvements in purchasing power and public confidence.

The economy will begin to enter a period of recovery in 2021, assuming the COVID-19 infection curve drops, along with the prospect of vaccine discovery and production to quickly resolve the current pandemic. “The economy can grow 4.4 percent in 2021,” Andry explained.

Economic Recession Consequences

Despite surging additional cases being detected each day, Indonesia did not, nor does not, plan on applying a strict lockdown like other countries, aside from implementing different stages of PSBB.

Jakarta being the epicentre of Indonesia’s economy and COVID-19 cases under PSBB resulted in various offices, shopping malls, food and beverage outlets, tourism, and many more ventures either temporarily or permanently closing down. Based on the socio-demographic survey by the Indonesian statistical agency, four out of ten Indonesians have experienced a decline in income during the pandemic.

Just like anywhere else in the world, many employees and labour layoffs have happened. According to the Ministry of National Development Planning (BAPPENAS), the unemployment rate will reach 10.7 million to 12.7 million people in 2021. In fact, Sakernas, a survey specifically designed to collect employment data that can describe the general situation of employment as well as shifts in labour structures between enumeration periods, reported the open unemployment rate (TPT) was at 6.88 million in February 2020.

The poverty rate in Indonesia due to COVID-19 was also highlighted by researchers from King’s College London and the Australian National University. The country’s well-known research institute, SMERU, estimates that the number of people living in poverty in Indonesia due to COVID-19 will increase to 1.3 million people by the end of 2020. In September 2019, the poverty rate in Indonesia stood at 9.22 percent and will most likely spike up to 9.7 percent in 2020. Hypothetically, the number of poor people will increase by 8.5 million people, and the Indonesian poverty rate will jump to the double-digit level of 12.4 percent – the highest level in over ten years.

The more relaxed conditions under the transitional PSBB in Jakarta, starting in June, which allowed public mobility to begin has showcased a stretch in economic activity. Unfortunately, the economy has not yet fully recovered to pre-pandemic levels. Now with an uncertain period of tighter PSBB regulations, who knows when Indonesia will eventually enter a recession? But as President Joko Widodo once said, the health of the people is more vital than the country’s economy and therefore health should be the primary focus of all individuals in power.

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