In the new normal era, Covid-19 policies on saving lives will go hand in hand with economic recovery. The cultural approach will be inherent in designing public policy in the era of the new normal after Covid-19.
By
ARI KUNCORO
·5 minutes read
REUTERS/STRINGER
People wearing face masks shop for vegetables inside a supermarket in Wuhan of Hubei province, the epicentre of China\'s coronavirus disease (COVID-19) outbreak, March 26, 2020.
It appears that the expectations for quick economic recovery in a V-shaped curve following the lifting of regional lockdown in Wuhan, China, will not be met soon. Even though shops and restaurants have opened, the trauma and fear of Covid-19 transmission is discouraging people from engaging in consumption activities. On the production side, the damages to the supply chain cannot be repaired immediately, so factories and even restaurants will not be able to immediately resume operations due to the lack of raw materials. China\'s economic growth contracted 6.8 percent in the first quarter of 2020 and Wuhan is one of the country’s manufacturing hubs, affecting supply chains in China and around the world.
The latest data shows a correlation between the strictness of lockdown measures with economic growth. In the United States, annualized growth shrank 4.8 percent in the first quarter of 2020. The economies of France, Spain and Italy respectively contracted 5.8 percent, 5.2 percent and 4.8 percent. Meanwhile, the economies of those countries that implemented relatively looser or partial lockdowns, specifically Germany and the United Kingdom, each recorded negative economic growth of 2.2 percent, while Sweden and the Netherlands recorded negative growth of respectively 0.3 percent and 0.5 percent.
Japan is perhaps the country most conscious of maintaining its supply chain. The country, which did not impose regional quarantines at the outset, but a health emergency, recorded negative growth of just 1.8 percent.
These countries say that they are referring to data and science in reopening their economies. However, poor data on economic growth has influenced the easing of lockdowns. One of the complex issues in relaxing lockdowns is to encourage people\'s expectations towards the new normal of balancing the health emergency while keeping the economy running.
AFP/CHARLY TRIBALLEAU
People wearing face masks cross a street in Tokyo Shinjuku area on May 25, 2020. Japan lifted a nationwide state of emergency over the coronavirus on May 25, gradually reopening the world\'s third-largest economy as government officials warned caution was still necessary to prevent another wave.
Slowdown phase
In Indonesia, economic activities have been limited through the large-scale social restrictions (PSBB) that aims to prevent Covid-19 transmission.
Nevertheless, the health emergency has still affected consumer confidence. The consumer confidence index (CCI; IKK in Indonesia) fell sharply in April to 84.8 from 113.8 in March. This negative expectation is consistent with reduced consumption of durable goods such as electronics, furniture, and household appliances. As a result, annualized private consumption grew only 2.84 percent on in the first quarter of 2020, down from 5.02 percent in the previous quarter.
Overall gross domestic product (GDP) grew 2.97 percent in Q1 2020, showing that the impacts of Covid-19 began to be felt in February in sectors such as transportation and tourism. The decline in foreign tourist arrivals also affected the trade, hotel and restaurant sectors. Growth in transportation and warehousing fell from 5.45 percent to 1.27 percent. Trade weakened to 1.97 percent from 5.21 percent in the fourth quarter of 2019, while hotels and restaurants fell to 1.95 percent from 5.87 percent.
According to the experiences of previous crises at home and abroad, these sectors will be among the first to recover. They have huge potential to be an anchor for recovery, as long as strict Covid-19 health protocols continue to be applied with high compliance. The key is to find the right balance.
KOMPAS/YUNIADHI AGUNG
Traffic congestions is seen in the Kebayoran Lama Market area, South Jakarta, on Friday (22/5/2020). Two days ahead of the celebration of Idul Fitri, residents pack traditional markets to buy food ingredients to be served during Idul Fitri.
Flatline phase
This phase will occur in the second and third quarters of 2020, and will initially be marked with low or even negative growth of between minus 1.1 percent and minus 0.3 percent in the second quarter. It will be then followed by flat growth in the third quarter from minus 0.1 to 0.5 percent. Recovery will follow a U-shaped curve with a jagged outward edge.
This shows that although the trade, hotel and restaurant sectors have the potential to follow the V-shaped curve of rapid recovery, growth will remain negative in the manufacturing sector, which contributes with around 22 percent to GDP. This is because consumers will prioritize consumption of food, entertainment, and recreation, but postpone consumption of durable goods at least until Q4 2020. If growth occurs later, manufacturing will be driven by the food and beverage subsectors.
In order to prevent deeper economic contraction, the government must implement several policies during this phase, including expanding social protections, minimizing recession in affected sectors, and protecting micro, small and medium enterprises, as well as banking and fiscal relaxation.
‘New normal’ phase
Healthy lifestyles and behaviors, such as wearing masks, using hand sanitizers, maintaining distance, and making transactions online will become the standard operating procedures in daily life. The need for a new normal will create opportunities for growth in the logistics and transportation industries, online education, health, and others. This presents an opportunity to build economic resilience, especially in the domestic supply chain for agriculture, industry, trade, tourism, and public services. If this can be achieved, it is projected that economic acceleration could begin in the final phase of Q4 2020 with growth of 4 to 4.4 percent, a momentum that can be continued through 2021.
KOMPAS/HERU SRI KUMORO
Ari Kuncoro
In the new normal era, Covid-19 policies on saving lives will go hand in hand with economic recovery. The cultural approach will be inherent in designing public policy in the era of the new normal after Covid-19.
