Economic Recession Ends

KOMPAS/SHARON PATRICIA

The Opposition Leaders Economic Forum with the theme "Save the Indonesian Economy in the Middle of the Covid-19 Crisis" at the Auditorium of the National Library of the Republic of Indonesia, Central Jakarta, on Friday (13/3/2020).

For the first time since the Covid-19 pandemic began, the Indonesian economy recorded a positive growth in the second quarter of 2021. The economy grew 7.07 percent year-on-year (yoy) during the period.

Compared to the first quarter of 2021, the economy grew 3.31 percent in the second quarter of 2021. With annual and quarterly growth returning to the positive zone, Indonesia is technically no longer in recession. The 7.07 percent growth, according to Statistics Indonesia (BPS), was the highest since 2004. In the fourth quarter of 2004, Indonesia’s economic growth was recorded at 7.16 percent yoy.

Also read:

> Maintaining Growth Momentum With Discipline

> Alarm of Economic Recession

> 2021: Between Pandemic and Economic Recovery

Due to disruptions caused by the pandemic, the Indonesian economy experienced contraction, with negative growth for four consecutive quarters, from the second quarter of 2020 to the first quarter of 2021. However, the economy has gradually recovered as reflected in the decline in the contraction rate.

The positive growth in the second quarter of 2021 was in line with the projection made following the easing of public mobility restrictions imposed by the government after the daily number of Covid-19 cases declined to 6,000.

On the one hand, this high growth rate was also due to the low base in the second quarter of 2020, during which the economy suffered a 5.32 percent contraction. However, on the other hand, it must be admitted that the economy had begun to recover as shown by the improvement of the main economic indicators such as the household spending, which contributed 57.23 percent to gross domestic product (GDP), investment and exports, which grew 5.93 percent, 7.54 percent and 31.78 percent yoy, respectively.

KOMPAS/PRIYOMBODO

Construction workers finish a concrete pillar on 14 Dec. 2019 at the site of the Light Rail Transit (LRT) Jabodebek project on Jl. H.R. Rasuna Said in South Jakarta. According to the World Bank Quarterly Report, Indonesia’s economic growth is estimated to reach 5 percent in 2019 and 5.1 percent in 2020.

The sharp increase in exports was supported by the improvement in the manufacturing sector, which grew above 6 percent. The export growth in June 2021 was the highest in nine years. The 31.22 percent increase in imports also served as a positive indicator because 75 percent of our imports consist of raw and auxiliary materials for industrial production.

The Consumer Confidence Index also improved.

Imports of capital goods also showed a sharp increase. The activities in the manufacturing sector as reflected in the Purchasing Managers\' Index (PMI) was also at an expansive level of above 55 percent. The Consumer Confidence Index also improved.

However, we should not be complacent. The recovery trend and growth momentum still face risks of being sabotaged by the surge in Covid-19 cases. In this regard, the warnings of economists should be heeded: the key is the discipline in implementing health protocols and the acceleration of the vaccination program.

Also read:

> Resurgence of Covid-19 Pandemic

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The government has stated that the easing of the social restrictions will be based on the growth trend of the new Covid-19 cases in the field. It means that if the spike in new cases cannot be controlled, the restrictions cannot be eased. Thus, it is not impossible that the economy will slow down again in the second half of 2021.

With the vaccination rate remaining low at about 17 percent of the population and the lack of vaccine supplies, which often hampers the vaccination program, the commitment of all parties to adhere to the health protocols is the key if we want essential sectors and the main sectors of the economy to be allowed to operate normally again. A number of social engineering programs may also be needed so that the relaxation of community activities is not followed by a spike in cases as happened before.

KOMPAS/TOTOK WIJAYANTO

A worker carries trays of freshly made tofu to the packaging section of a small tofu producer on Thursday (23/7/2020) in Pancoran, South Jakarta. As of July 21, the government has disbursed Rp 11.84 trillion in working capital for cooperatives and micro, small and medium enterprises (MSMEs) through national economic recovery program. The figure is 9.59 percent of the Rp 123.46 trillion fund for cooperatives and MSMEs.

We all have to realize that the longer it takes to get out of this crisis, the longer and harder it will be for the economy to return to pre-pandemic levels.

(This article was translated by Hendarsyah Tarmizi).