The Indonesian economy is very likely to enter a recession in the third quarter of 2020. We need to find the right and quick way to recover.
By
KOMPAS EDITOR
·3 minutes read
The Indonesian economy is very likely to enter a recession in the third quarter of 2020. We need to find the right and quick way to recover.
Finance Minister Sri Mulyani Indrawati told reporters on Monday that the country’s economic growth prediction had been revised to a range between minus 1 and 2.9 percent in the third quarter, this year. If the prediction is accurate, Indonesia will officially fall into a recession because the economy already suffered a contraction of 5.32 percent in the second quarter, the deepest decline since the 17.9 percent contraction in the third quarter of 1998.
Under normal circumstances, a country will by all means try to avoid a recession. The economy shrinks as household spending falls and investment declines. The decline in economic growth has resulted in an increase in unemployment and the number of poor people. It has also caused the wealth gap to widen.
However, right now we are facing a situation that is not normal. The COVID-19 pandemic has affected all aspects of life in all countries. Indonesia\'s economy is faring relatively better than other ASEAN countries, such as Malaysia, whose economy has shrunk by 17 percent, as well as the Philippines, Singapore and Thailand. Only Vietnam grew 0.36 percent in the second quarter of 2020.
The growth forecast of between minus 1 percent and minus 2.9 percent in the third quarter was made after the economy suffered a contraction of 5.32 percent in the second quarter, this year.
We need to identify the economic sectors that are still growing and then focus on these sectors to maintain their growth as well as expand the activities in their upstream and downstream industries.
Before the emergence of COVID-19, Indonesia’s economic growth was relatively better than those in other emerging economies. Indonesia\'s debts were also moderate and tended to be low, at below 30 percent of gross domestic product (GDP) although the increase in foreign loans still needs special attention.
The business sectors that still saw growth in the second quarter of 2020, according to data from Statistics Indonesia (BPS), included, among others, information and telecommunications, water supply, health, real estate, agriculture and forestry and fisheries.
The widening of the state budget deficit, which is allowed by law to exceed 3 percent of GDP in order to be able to overcome COVID-19, is also expected to provide an economic stimulus, grow industry, create jobs, as well as provide a social safety net.
The pandemic provides an opportunity to grow the industries that have remained sluggish since the 1998 financial crisis. The manufacturing of medical devices and medicines, which still mostly relies on imported raw materials, as well as the food industry and rural farming, should be further pushed to support economic growth.
It is now time to develop information and telecommunications infrastructure to further push digital transformation. With a clear focus and program, we have a great opportunity to recover from the slowdown and achieve growth of up to 6 percent in 2021.