Anticipating Pressures on National Economy

KOMPAS/AGUS SUSANTO

Multi-storey building in Central Jakarta, on Thursday (10/2/2022).

The economy is not expected to grow at as high a rate as it did in the third quarter of 2022. Although it remains optimistic, the government is poised to anticipate any pressures on the national economy.

JAKARTA, KOMPAS – Until the third quarter of 2022, the economy was growing fast, maintaining this year’s growth trend of above 5 percent. However, this trend is unlikely to continue amid the impact of the global economic slowdown. The government will be observing further developments and anticipating any pressures on the economy next year.

According to data from Statistics Indonesia (BPS) released on Monday (7/11/2022), Indonesia posted year-on-year (yoy) economic growth of 5.72 percent in Q3 2022 (July-September), continuing the growth trend of above 5 percent over the four successive quarters from Q4 2021.

Growth was supported by household consumption, which grew 5.39 percent yoy and contributed 50.38 percent to the economy. Consumption grew due to increased spending among the upper middle class, especially on tertiary needs, while spending among the lower middle class was backed by social aid and energy subsidies.

Export performance was buoyed by the rising prices of coal, oil and natural gas, as well as exports of services that grew 82.84 percent as a result of a surge in foreign tourist arrivals in the wake of the pandemic.

The economy was also supported by investment and exports, which grew 21.64 percent to contribute 26.23 percent. Export performance was buoyed by the rising prices of coal, oil and natural gas, as well as exports of services that grew 82.84 percent as a result of a surge in foreign tourist arrivals in the wake of the pandemic.

“The windfall is still continuing, although it has started to decline due to the more competitive prices of some global commodities,” BPS head Margo Yuwono told a virtual press conference on Monday.

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Q3 economic growth involved nearly all business sectors, except health services, which posted a contraction of minus 1.74 percent.

On the other hand, the economy still grew at a high rate in Q3 2022 as a result of last year’s low base effect. In Q3 2021, the national economy slowed due to the spread of the Delta variant of Covid-19, posting growth of 3.51 percent.

Another factor was the spillover effect on inflation and purchasing power, as well as on real sector performance, from surging fuel prices that had not been felt much.

“The fuel hike only occurred over a month [September] in quarter three, so its full impact was not felt during this quarter,” said Margo.

No repeat

Economic growth is not expected to be not as high in in Q4 2022 as it was in Q3 2022. This will be even more so the case with the global economy next year, which is predicted to be “gloomier”.

KOMPAS/AGUS SUSANTO (AGS)

Riders pass the videotron stock exchange on Jalan Sudirman, South Jakarta, on Thursday (5/8/2021).

Executive director Mohammad Faisal of the Center of Reform on Economics (CORE) Indonesia said the impacts of global economic turmoil as well as fiscal and monetary tightening, such as the fuel and interest rate hikes and the weakening rupiah against the US dollar, would pressure purchasing power and real sector performance.

Export performance is also forecast to not reach as high as before, although the trade surplus is expected to continue. Exports are expected to be affected by declining demand from developed countries due to high inflation and the impacts of a decline in commodity prices.

According to Faisal, the government should not be “lulled” into complacency by the current achievements and should start anticipating economic upheaval. Public consumption and the real sector should be supported as the backbone of the national economy amid weakening global demand.

“Although the national economic recovery policy is going to end, an additional nonroutine incentive policy is still needed. This time, it is not intended to overcome the pandemic, but rather to face a new crisis,” he said.

Corporate loan restructuring was now being discussed with the Financial Services Authority (OJK).

Coordinating Economic Minister Airlangga Hartarto said the government would be monitoring the rising economic pressures, especially in the real sector. General corporate incentives would not be provided, but would instead be given selectively. Corporate loan restructuring was now being discussed with the Financial Services Authority (OJK).

Selective incentives should be provided because the impacts did not affect the entire labor-intensive industry, with some sectors still recording high growth.

“We have to examine each sector in detail,” said Airlangga.

On the other hand, he expressed his optimism about maintaining household consumption, despite the slowdown in Q3 2022 from 5.51 percent previously.

KOMPAS/HERU SRI KUMORO

Coordinating Economic Minister Airlangga Hartarto

“Household consumption indeed declined, but this was simply [part of] the pattern. The quarter-two consumption was high because demand surged during Idul Fitri, but later leveled off. The present condition is still fair,” he added.

Bank Indonesia communication head Junanto Herdiawan said growth would remain strong with the support of improved domestic demand and the continuance of the National Strategic Program (PSN). Still, the potential impacts of the global economic slowdown on export performance and higher inflation on household consumption should be monitored. (AGE/BKY/JUD)

(This article was translated by Aris Prawira)