Accelerating the Economic Recovery

KOMPAS/FAJAR RAMADHAN

A Prasetyantoko.

In its latest World Economic Outlook, published in October 2020, the International Monetary Fund (IMF) revised upward the global economic growth estimate from minus 5.2 percent to minus 4.4 percent. The global economy has shown some improvement from July projections, but the recovery remains long and complicated. The projection appears in the IMF’s quarterly report “A Long and Difficult Ascent”.

The encouraging global growth projection was, however, immediately hit by growing concerns over the second COVID-19 attack in Europe. The region\'s economy will slow down again due to the implementation of the quarantine.

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The worrying fact also surrounds developing countries, there the situation is projected to worsen compared to previous estimates. In the April projection, developing economies were forecast to contract by 2.3 percent, but according to the July projection, they would contract by 5 percent, and that projection was revised down again in October, namely to just 5.7 percent.

No single country is expected to post economic growth this year, except for China, which is expected to grow by 1.9 percent. Meanwhile, the five ASEAN countries are expected to grow at minus 3.4 percent, but to bounce back with growth of 6.2 percent in 2021.

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An October report by the Organization for Economic Co-operation and Development (OECD) titled “Living with Uncertainty” states that, even though the global recession was not as severe as previously thought, risks and uncertainty remained high. With such a situation, the global economy is projected to contract by 4.5 percent this year, while the Indonesian economy is expected to shrink by 3.3 percent.

Are there any remaining opportunities in the next two months to maximize the domestic economic recovery? Economic data for the third quarter of this year will be announced soon and is expected to show negative annual growth, but the quarterly growth is expected to show signs of recovery.

Recession anatomy

The economic recession caused by the COVID-19 pandemic has a different character from previous crises. First, the recession this time around has a devastating effect on the services sector, while the impact on the manufacturing sector is relatively mild. The World Bank data on the global Purchasing Managers Index (PMI) for April 2020 showed that the index reading for the service sector had slumped to 20, while the manufacturing sector reading dropped to 40. A score below 50 indicates contraction and a smaller number indicates a deeper contraction. In Indonesia, as in other countries, tourism and related businesses have been hit hardest.

Second, the rate of home sales in many countries is still increasing. The September 20 issue of The Economist reported that house prices in the United States this year increased by an average of 5 percent, in stark contrast to the 2017/2018 crisis, when house prices fell by 10 percent. Similar trends have been seen in other developed countries. Meanwhile, property prices in Indonesia tend to be stable and even increase in several segments, such as shop houses.

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Third, funds owned by priority customers in national banking have increased significantly. The funds owned by priority customers of PT Bank Central Asia Tbk increased by 27 percent annually as of September 2020. As for PT Bank Mandiri, the funds increased by 12.6 percent, while those at PT Bank Negara Indonesia Tbk increased by 9 percent. People of the middle and upper class are still safe from recession, while the middle and lower classes experience shocks. The stimulus in almost all countries focuses on this vulnerable lower-middle class.

Fourth, amid a shrinking economy, the information and communication sector has grown. In the second quarter of 2020, the sector grew by 10.88 percent year-on-year (yoy), up from 9.60 percent in the first quarter, as the only economic sector that grew. It is very possible that this sector will continue to grow in the third and fourth quarters of this year.

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The domestic stock market has been invigorated by initial public offering (IPO) plans of several technology and health-based companies, such as Tokopedia, Gojek, Bukalapak, OVO, Traveloka, Tiket.com and Halodoc. A similar trend has occurred in the United States stock market, where the FAANG + share price index, which comprises Facebook, Apple, Amazon, Netflix, Google, plus Alibaba, Baidu, Tesla, Twitter and Nvidia, has become a prime mover of share prices in the stock market.

The anatomy of a recession due to a pandemic shows that the economy is likely to grow faster when COVID-19 is overcome.

KOMPAS/TOTOK WIJAYANTO

Employees of the Hypermart retail shopping center in the Tanah Abang area, Jakarta, arranging drinks, Thursday (24/9/2020). Economic activity in the real sector is believed to be able to accelerate the economy out of the recession and then economic conditions can gradually recover.

However, the economy will move in different directions, as the results of increasing environmental awareness and rapid technology adoption.

Towards the end of 2020, there should be the focus of the policy that needs to be taken. First, the focus should be taken on health problems by controlling the COVID-19 transmission. The handling of the health problems has become an indicator in measuring the cost of a recession and the prospects for recovery.

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Second, don\'t be late in transforming. In fact, the transformation is a lever for the acceleration of the economic recovery. For example, financial technology can be used in the distribution of social assistance as well as in the registration of population data. With this database, future financial inclusion programs can be carried out more systematically.

Economic recovery efforts are no longer sufficient, because what is needed is an economic transformation.

Third, the empowerment of micro and small businesses should be accelerated through technology. The Cooperatives and Small and Medium Enterprises Ministry has a stronger foundation in leading the efforts to empower small and medium scale enterprises (SMEs), especially when the implementing rules of the Job Creation Law have been issued.

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Fourth, the industrial sector should be given incentives, so that it can fundamentally adopt a digital transformation, not only change business processes, but also business models.

Economic recovery efforts are no longer sufficient, because what is needed is an economic transformation. Don\'t let us lose the momentum, because the COVID-19 pandemic has changed many things, including consumer tastes and ways of doing business. The post-pandemic world will not be the same as the world we knew.

A. PRASETYANTOKO, Rector of Atma Jaya Catholic University (Unika Atma Jaya), Jakarta.