Restrictions of Community Activities

Name: Restrictions of Community Activities
Uploaded: 2021-01-12T05:52:45Z
Duration: 20 min 32 s
Description: The lessons learned from last year’s long holiday was that a spike in new positive COVID-19 cases would reduce household spending.

The lessons learned from last year’s long holiday was that a spike in new positive COVID-19 cases would reduce household spending.

ARI KUNCORO

· 5 minutes read

After witnessing the economic impact of quarantine implemented during the early days of the COVID-19 pandemic, some European countries have changed their approach to being micro in focus and more proportional in managing the source of infections. This step is taken because the people have grown more critical of the current approach, even conducting street protests, due to its impact on their income and employment opportunities.

The situation changed, however, after a new and more infectious variant was discovered in the United Kingdom and spread to other countries. Bars and restaurants’ operational hours were cut down in the UK, Germany and Spain. Furthermore, countries such as the UK, Germany and Thailand imposed total lockdowns to prevent hospitals from getting overwhelmed.

Also read: Notes on Turbulent 2020

Making this decision is not easy because these choices will cause a deep economic contraction as in the second quarter of 2020. Disruption to economic growth would hurt the government’s tax revenue.

Stricter restrictions

Indonesia is in the same situation. The lessons learned from last year’s long holiday was that a spike in new positive COVID-19 cases would reduce household spending. A reduction in household spending would affect the country’s economic growth greatly because it accounts for 59 percent of gross domestic product (GDP).

Also read: Vaccines and Economic Recovery

The impact of the Christmas and New Year holiday season can be observed from a spike on Tuesday with 9,321 new cases detected. Having learned the lessons, the government did not delay its decision to impose stricter large scale social restrictions (PSBB) – now known as restriction on community activities (PKM) – from January 11 to 25.

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Indonesian Economic Growth Quarter 2001 - 2020

The government also tried to minimize the negative impact of such announcement as occurred last September. Through this new policy, the government wants to emphasize the key word “restriction” not “prohibition”. The name of the new policy was changed to PKM. Mobility requirements to regions implementing PKM are explained in greater detail, providing discretion for local governments.

Economic impact

The economic impact of stricter PSBB will occur in this year’s first quarter GDP data. Therefore, the government needs to preserve economic recovery momentum created since the third quarter of 2020. Statistics Indonesia has not published the latest GDP data, so we need to look at forward looking economic indicators. They include the purchasing manager index (PMI) from IHS Markit and the average propensity to consume calculated from Bank Indonesia’s survey on consumer confidence.

The shock created by the PSBB announcement in September caused the PMI to drop from an expansion zone of 50.8 in August to a contraction zone of 47.2 in September, a 7.1 percent month-on-month (mom) drop. The change in wording from “total PSBB” to “stricter PSBB”, combined with a detailed explanation of the micro aspect of the policy, resulted in an increase in the PMI to 47.8 in October last year. The PMI returned to the expansion zone in November last year, specifically to 50.6.

Also read: The Irony of the Pandemic Stimulus

Micro restrictions are necessary to minimize negative spillover on the circular flow of income, which occurs through the expectation channel on consumption and production. For instance, it is important to clarify that staple foods logistics will keep operating but with limitation on capacity and operational hours, as well as with health protocol implementation. To minimize the negative impact, the government also allows construction to keep operating at 100 percent capacity. To avoid infections, school activity is done through long distance learning. Moreover, the portion of work from home is increased to 75 percent.

In December, the PMI reached the level of expansion at 51.3. It means that the PMI has gone above 50 for two months straight. This increase was the second-largest monthly increase in manufacturing production within the last 10 years.

Also read: Beware of the Second Wave of Recession

The people also observes the government’s efficacy in managing the pandemic. Behind the optimism in production, consumers are becoming more anxious, particularly the upper-middle class, due to a rise in daily positive cases since the long holiday in October last year. As a result, consumers became more cautious disbursing their spending, indicated by a drop in the average propensity to consume indicator from 69.4 in October to 68.8 in November last year. It shows that the economy lost its recovery momentum, indicated by an increase from September’s figure at 68.8, due to the upward trend in COVID-19 infections.

The number of daily new detected COVID-19 cases already dropped from 4,634 on September 24 to 2,696 cases on November 1. However, the long holiday at the end of October last year increased the daily new cases count to 5,444, affecting the average propensity to consume in November.