FEB UI Economist: Maintain Momentum with Discipline

The national economy grew 7.07 percent on an annual basis in the second quarter of 2021. Discipline in implementing health protocols and intensifying vaccinations will determine future economic movements.

JAKARTA, KOMPAS — (6/8/2021) Data on economic growth in the second quarter of 2021 marked the return of positive growth after a contraction since the same period last year. However, the recovery trend will still be vulnerable to disruptions, especially regarding the handling of Covid-19.

The Central Statistics Agency (BPS) noted that the national economy grew 7.07 percent annually in the second quarter of 2021 with a gross domestic product (GDP) at current prices of Rp 4,175.8 trillion. Based on the expenditure component, household consumption grew 5.93 percent, exports grew 31.78 percent, imports grew 31.22 percent, investment grew 7.54 percent, and government consumption grew 8.06 percent.

An economist from the Faculty of Economics and Business, Universitas Indonesia, Chatib Basri, Thursday (5/8/2021), stated that the growth data for the second quarter of 2021 was high because of the annual comparison with the second quarter of 2020, which was minus 5.32 percent. However, the data shows an improvement in the economy, consistent with the improvement in the performance of a number of growth-supporting sectors.

The soaring car sales were driven by the incentive to reduce the Sales Tax on Luxury Goods (PPnBM). Exports and imports also grew significantly on the back of rising commodity prices and the economic recovery of a number of countries.

“Household consumption, the largest contributor to gross domestic product (GDP), which is 57.23 percent, also grew supported by the revival of community mobility. Improvements in export-import performance and household consumption also encourage the growth of the manufacturing industry and investment.” Chatib said in a virtual dialogue held by the Ministry of Trade.

According to him, one of the important things that need to be observed is the mobility of the people. Mobility is often a dilemma for governments. When people’s mobility is relaxed, the economy moves. However, easing often leads to an increase in Covid-19 cases.

“What needs to be resolved is how to encourage the economy, whilst keeping Covid-19 under control. The key is to be disciplined in implementing health protocols and accelerating vaccinations.” he said.

Chatib assesses that the level of community discipline in implementing health protocols in Indonesia is not as good as Singapore, or even Vietnam. Meanwhile, in terms of vaccinations, the acceleration is still uneven and is hampered by a number of things, especially regarding the stock of vaccines.

Minister of Finance Sri Mulyani Indrawati, during a separate press conference, stated that the momentum for economic recovery would be maintained if the transmission of the Covid-19 virus could be controlled so that community mobility and economic activity could return to normal.

According to him, economic growth in the third quarter of 2021 is projected to still grow positively at 4 to 5.7 percent. This optimism is based on the belief that the recovery momentum will be maintained in the second quarter of 2021.

Sri Mulyani added that the recovery momentum would be maintained, supported by consumption, which is believed to be accelerated by social protection programs. The realization of the use of the National Economic Recovery (PEN) program budget until July 30 reached Rp 305.5 trillion. This figure is equivalent to 41.02 percent of this year’s PEN ceiling of Rp 744.75 trillion.

Coordinating Minister for Economic Affairs, Airlangga Hartarto, believes that the economic growth in the fourth quarter of 2021 could be more than 5 percent with a record of cases of Covid-19 transmission dropping drastically at the end of September 2021. “In August we are still implementing PPKM (implementation of restrictions on community activities)” he said.

Essential industries

General Chairperson of the Indonesian Chamber of Commerce and Industry (Kadin) Arsjad Rasjid, who was present at the dialogue at the Ministry of Trade, argued that in order to move the economy without neglecting the handling of Covid-19, the government needs to fully open up essential industries, especially those that are export-oriented. However, they must apply a number of conditions, namely discipline in health protocols in the work environment and having vaccinated all employees.

“Retail can be fully opened as long as all retail workers in malls have been vaccinated. Visitors who are allowed to enter the mall must also have been vaccinated, namely by showing a vaccination card.” he said.

Stock index

Data on economic growth during the second quarter of 2021 encouraged the purchase of stocks on the Indonesia Stock Exchange. However, a number of analysts estimate that the economy will still face challenges in the third quarter of 2021.

The Composite Stock Price Index (JCI) closed up 46.38 points, or 0.75 percent, to 6,205.41 at the end of Thursday’s trading. “Whether growth will be maintained depends on how the government handles Covid-19 and vaccinations.” said Mirae Securities’ Investment Information Mirae Asset, Nafan Aji Gusta on Mirae Asset Day.

On a separate occasion, Chairman of the Board of Commissioners of the Financial Services Authority (OJK), Wimboh Santoso said the achievement of growth in the second quarter of 2021 is a positive signal of economic improvement. In order to maintain the momentum, public consumption needs to be maintained and government spending accelerated.

ANZ Bank economist Krystal Tan and ANZ Economist for Southeast Asia, Sanjay Mathur, in their research also warned that the spread of the virus and tightening of community activities since early July 2021 will reduce growth in the third quarter of 2021. “In general, we cut our 2021 growth forecast from 4 percent to 3.8 percent,” ANZ forecasts.

The same concern was conveyed by the Head of the Communication Department of Bank Indonesia, Erwin Haryono. According to him, the positive economic growth was supported by the positive performance of all components of demand and business fields.

Source: Kompas Daily. Edition: Friday, August 6, 2021. General Rubric. Page 1 continued on Page 15.

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