It’s Getting Scarier and Scarier! UI Economists on Recession in Indonesia
DEPOK – (14/9/2020) Indonesia is on the brink of an economic recession after the economy plunged due to the Covid-19 pandemic. The economy was corrected by 5.32% in the second quarter of 2020. It would be hard to recover from the deep contraction in the third quarter because Covid-19 infections have continued and the government must extend the implementation of the large-scale social restrictions.
Finance Minister Sri Mulyani Indrawati has stated repeatedly that the economy would remain in the negative zone in the third quarter although the contraction would not be as deep as in the second quarter. At home, economists even said that Indonesia was on the brink of an economic recession. It was just a matter of an official announcement to confirm their fears.
Following are the views of UI’s economists, who said that would and even has plunged into a recession:
UI Economist Ari Kuncoro
Indonesia is still in recession, although its condition is still better compared to other countries. The most pressing issue today is to increase human mobility and that means the implementation of a health protocol. The question is, who will supervise its implementation. It should be the responsibility of regional components. No matter how many government apparatus deployed, many people are still going out and the awareness of the need to comply with the health protocol is still low. This should be improved.
A recession occurs when the economy registers negative growth for two months in a row. Retail sales decline, the manufacturing Purchasing Mangaers’ Index (PMI) fell, and air traffic declined. In our case, all the indicators have improved, the PMI us 50.8. Consumer confidence index for durable goods has also increased. The quezstion is, why growth is still negative despite the improvements. Can we call this a recession?
Technically speaking, Indonesia registered negative growth for two months in a row. However, there are other indicators that must be considered. We are not in a recession although many people feel they are already in recession. People have resumed activities. The problem is, the middle class has yet to start spending again. They should make out-of-town trips and help drive the economy. That would recycle the income of the middle and upper income groups out of town and will boost growth.
I’m still waiting and will see what happens in the third quarter. September data are usually published in October, which is why we cannot rely on those data. Makanya kita lihat indikator yang tadi. The Consumer Confidence Index (CCI) is published in September. If it shows an improvement, it means third-quarter growth will not be as low as in the second quarter. In fact, the government has stated that although the economy will still register a negative growth, it will not be too deep, even could be 0%. If that happens, it is not a recesion but a slowdown toward recovery. Unless it’s another -5% growth, then we’ll be in a recession. We have seen continuous improvements.
UI Economist Fithra Faisal
When talking about a recession scenario, it is most likely occur in the third quarter because of negative growth in the second quarter. The third quarter should see a momentum for positive growth, although I would think it would be quite hard to achieve positive groth in the third quarter, despite signals toward that direction. Indonesia’s PMI has increased to 50.8 and it was a progressive improvement from 28, 39, 46 in May-June-July, respectively. This means there has been expansion.
This is also in line with he trend, particularly regarding exports. When the industry picks sup pace, exports will increase. As we can see in the past two months, until July exports had increased mtm. This is actually good news, although it is not enough.
In general, although mobility has increased, it is still to early to say whether it can help Indonesia avoid a negative growth because it is determined by the health variable. Therefore, I think it will be difficult to s achieve positive growth in the third quarter. Negative growth in the third quarter means a recession.
Thus, based on the scenario we have discussed, if growth is not flat in September, this means the economy is negative. According to forecast, it will be -0,8%, and could be -2% in the worst case scenario, depending on whether or not the pandemic is flat. (hjtp)
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