Global Recession Starts Hitting Exports

The threat of a global economic slowdown and recession has slowly but surely started to affect Indonesia. One indication of this is a fall in exports.

KOMPAS/BAHANA PATRIA GUPTA

Trade Minister Zulkifli Hasan (left) breaks a jug accompanied by Maspion Group owner Ali Markus when releasing the 100,000th export container containing Maspion's aluminum products in Sidoarjo, East Java, Thursday (29/9/2022). The export destination is America with a value of 1.2 million USD.

Although we recorded solid economic growth amidst global crises and uncertainty of 5.44 percent in the second quarter and 5.23 percent in the first half of 2022, we must anticipate the imminent threat of a global recession on our exports.

The global economic slowdown that has resulted from high inflation, global monetary tightening, the Russia-Ukraine war, and the Covid-19 pandemic, have prompted various research institutions to lower their projections for world growth in 2022 and 2023. The global economy is generally forecast to be gloomier in 2023 than in 2022.

In October, the International Monetary Fund (IMF) revised its 2023 global growth forecast from 2.9 percent to 2.7 percent. One-third of economies in the world have plunged into a recession after they contracted over two consecutive quarters.

Also read:

> Transition to Recession

> Recession and Economic Sustainability

Although Indonesia is unlikely to fall into a recession, a slowdown in the national economy cannot be avoided. While a surplus in the trade balance was maintained until this month, the figure has continued to decline in line with the fall in Indonesian exports and the rupiah depreciation. The decline in exports was triggered not only by a decline in commodities prices, but also by a decline in demand from countries experiencing an economic slowdown.

The World Bank and the IMF have respectively forecast that China, which accounts for around 18 percent of global gross domestic product (GDP) and 26-27 percent of Indonesian exports, will record growth of just 2.8 percent and 3.2 percent this year, a sharp decline from 8.1 percent in 2021.

KOMPAS/TOTOK WIJAYANTO

Container trucks queue to enter the New Priok Container Terminal 1 area in Kalibaru, Jakarta, Friday (16/9/2022). The threat of a global economic slowdown and recession has slowly but surely started to affect Indonesia.

China’s growth projection is the worst in the last five decades. Slowdown in growth has also been experienced by Indonesia’s other important trading partners, such as the United States, which accounts for 9 percent of Indonesia's exports, as well as Southeast Asia (14.63 percent) and the European Union (4.79 percent). The decline in exports may curb slightly curb for the remainder of 2022 because the demand for commodities like coal is still high, although the figure is lower than before. However, the decline will not stop anytime soon.

With the global situation expected to be far bleaker in 2023, we must strengthen our economic fundamentals. In addition to a decline in trade, we must anticipate the impact of a global recession or stagflation that is certain to occur in 2023 through other efforts, such as by preventing a further decline in the rupiah exchange rate and an increase in foreign debts.

Also read:

> Indonesia Can Survive Recession While Economic Growth Slows

> Inflation Set to Soar

State revenue will also decline due to the decline in exports. The weakening of the rupiah can also suppress growth as raw materials and capital goods become increasingly expensive. So far, high inflation due to the soaring global prices of food and energy has caused a cost of living crisis in 190 countries, while three-quarters of the world's countries are also threatened by a debt crisis.

Strengthening the national economy is the key to surviving the external turmoil. Maintaining the people’s buying power, improving the performance of the manufacturing industry and improving the investment climate are crucial. Synergy is needed across the various monetary, fiscal and real sector policy mixes to maintain resilience against threatening situations for the remainder of 2022 and throughout 2023.

This article was translated byHendarsyah Tarmizi.