2022 Believed to be Safe from Recession, Next Year Needs Attention

KOMPAS/WISNU WIDIANTORO

Coordinating Minister for the Economy Airlangga Hartarto (second right) during the Indonesia's Anticipating Independent Economic Discussion against the Potential Global Crisis held at the Kompas Daily Office, Jakarta, Thursday (4/8/2022). Several other speakers were Founder of CORE Indonesia Hendri Saparini (third left), Deputy General Chairperson of KADIN Mulyadi Jayabaya (left), University of Indonesia Academician Teguh Dartanto (second left), and Deputy General Leader of Kompas Daily Budiman Tanuredjo (right).

JAKARTA, KOMPAS — The economic structure of the country, which is supported by domestic consumption, has reduced the chances of Indonesia being dragged into the global recession. In 2022, Indonesia is believed to be safe from recession. However, the projection of global economic stagflation and recession should not be neglected, especially the impact on Indonesia next year.

Coordinating Economic Minister Airlangga Hartarto expressed his optimism at the Independent Economic Discussion, themed Anticipation of Indonesia against Potential Global Crisis held by Kompas daily in Jakarta on Thursday (4/8/2022). Indonesia's economic growth until the end of 2022 could be in the range of 5.3 to 5.9 percent, higher than the government's initial projection of 5 to 5.2 percent. This is supported by the belief that public consumption will continue to grow in the second half of 2022.

The dean of the Economics and Business Department, the University of Indonesia (FEB UI), Teguh Dartanto, argued at the discussion forum that there was indeed an opportunity for the Indonesian economy to grow above 5.3 percent in 2022. "In my opinion, this is a factor of good policy and good luck," said Teguh.

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On Thursday, the Institute for Economic and Social Research (LPEM) of FEB UI also released a projection that the Indonesian economy in the second quarter of 2022 will grow 5.07 percent or in the range of 5.04-5.09 percent. LPEM of FEB UI estimated that the Indonesian economy at the end of 2022 will be able to grow by 5 percent.

According to Hendri Saparini, founder of the Center of Reform on Economics (CORE) Indonesia, who was also a speaker at the discussion, the mix of fiscal and monetary policies alone is not enough to ward off external fluctuations that can test the solidity and stability of Indonesia's economy at any time. The productivity and performance of the real sector as a driver of economic activity need to be stimulated, especially to meet domestic demand.

Based on a Bloomberg survey of world economists, Indonesia's recession risk level is only 3 percent, much lower than the majority of countries in the world. A country is categorized as vulnerable to recession if the risk rate reaches 70 percent.

Aside from the survey results, Airlangga mentioned a number of variables used to calculate the potential for recession in the CEIC Leading Indicator, including the rupiah exchange rate against the United States dollar, vehicle sales, the Jakarta Composite Index (JCI), cement consumption, non-oil and gas exports and savings-borrowing ratios in the country, which still show signs of Indonesia's expansive economy.

He projected that this condition would be supported by growth in public consumption and improvement in the performance of the manufacturing industry.

Infographic Probability of a Country in Recession

Global uncertainty

However, Airlangga highlighted global uncertainty that has the potential to disrupt the stability of the national economy. One element is global inflationary pressures that have been driven by high commodity prices. This increase has been triggered by supply chain disruptions that will continue as long as the conflict between Russia and Ukraine has not ended.

In addition, the threat of climate change and the unfinished Covid-19 pandemic have contributed to the expansion of protectionist policies, especially in the food and energy sectors. This can have an impact on the weakening of national consumption.

For this reason, Airlangga added, the government, among other actions, is promoting agricultural intensification to replace the supply of imported food commodities, which are running low due to protectionism. For example, sorghum plantations are increasing in the country as a substitute for wheat imports.

To anticipate the energy crisis, the State Budget (APBN) is used as a cushion so that the spike in world energy prices is not transmitted to the prices of fuel oil (BBM), liquified petroleum gas (LPG) or basic electricity tariffs. This is done by increasing energy subsidies.

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In this regard, Teguh Dartanto highlighted the resilience of the fiscal space that is being used up for energy subsidies. Moreover, next year's fiscal deficit has been mandated to return to below 3 percent of gross domestic product (GDP).

"It is time for the government to reduce energy subsidies and direct more use of fiscal space for job creation so that the economic recovery that occurs is more real and sustainable," he said.

Speaker Hendri Saparini hoped that the government would not only focus on the mix of fiscal and monetary policies to prevent the impact of the recession on the national economy. To roll out domestic economic growth, the real sector in the country which is dominated by micro, small and medium enterprises (MSMEs) must be ensured to continue to thrive and grow.

What is needed now is to increase the capacity of farmers and the establishment of new markets so that the absorption of agricultural products in the country will be smoother.

Taking into consideration that investment is the second source of national economic growth after consumption, Hendri encouraged the government to continue to explore small and medium scale investments. This would help develop MSMEs to remain productive while creating jobs.

Meanwhile, deputy chairman of the Chamber of Commerce and Industry for Regional Economic Development, Mulyadi Jayabaya, was of the view that the corporatization of the agricultural sector could be used as a lever for community economic empowerment, as well as to meet the needs of domestic food commodities affected by global supply chain disruptions.

If corporatization of the agricultural sector can be carried out massively in many regions, the opportunity for self-sufficiency in various food commodities will be even greater.

"What is needed now is to increase the capacity of farmers and the establishment of new markets so that the absorption of agricultural products in the country will be smoother," he said.

This article was translated by Hyginus Hardoyo.