President Jokowi Worried About Recession; Will It Affect Indonesia?

 

 

President Joko Widodo, or Jokowi, is worried about a global recession due to tightening United States (US) monetary policy, global uncertainty, and the Russia-Ukraine war. The Head of State asked all parties to be aware of the threat.

 

While giving a briefing at the Plenary Cabinet Session held at the State Palace, the Presidential Palace complex, Jakarta, Tuesday (10/5/2022), Jokowi highlighted several factors that are now threatening the world economy, especially rising inflation.

 

“This will lead to a recession in many countries. Therefore, macroeconomic management must be followed in detail and micro terms as well,” said Jokowi.

 

The former governor of DKI Jakarta also asked his staff to continue to monitor the latest developments, especially those related to food and energy. This is because global uncertainty will trigger food and energy shortages.

 

Pasar RI Sangat Besar, Jokowi: Jangan Sampai Dimanfaatkan Negara Lain :  Okezone Tren
Photo source: okezon.com

 

Jokowi’s concern about the ‘ghost’ of recession is understandable considering that Indonesia has just emerged from the recession. In general, an economic recession is marked by a contraction in Gross Domestic Product (GDP) for two consecutive quarters.

 

Referring to this understanding, the Indonesian economy will enter a recession zone in 2020 and 2021. Quarter to quarter (QtQ), the Indonesian economy has contracted for three quarters from the fourth quarter of 2019 to the second quarter of 2020. Contractions of two consecutive quarters were also repeated in the fourth quarter of 2020 to the first quarter of 2021.

 

On a year-on-year (YoY) basis, the Indonesian economy also contracted for four consecutive quarters from the second quarter of 2020 to the first quarter of 2021. Previously, Indonesia had a recession in 1998 following the Asian monetary crisis.

 

In the last two quarters, the Indonesian economy has grown back to its historical level of 5% (YoY). In the fourth quarter of 2021, Indonesia’s economy grew 5.02% while the first quarter of 2022 grew 5.01%.

 

Bank Maybank Indonesia economist Myrdal Gunarto believes that the Indonesian economy will still grow above 5% in the second quarter of this year. Thus, Indonesia can record growth of above 5% for three quarters. This means that Indonesia can move further away from the abyss of recession.

 

“Economic consumption will increase (in the second quarter) driven by Ramadan and Eid. The 13th salary will also encourage government spending and economic activity. Exports will also continue to improve in line with rising commodity prices,” said Myrdal in his report Indonesia GDP & Inflation Update.

 

Myrdal hopes that the government and other policymakers will pay attention to and maintain the rate of public consumption. The reason is, that in the first quarter of 2021, public consumption which grew by 4.34% contributed to a growth of 53.7%.

 

“There are challenges facing Indonesia in the future, especially rising inflationary pressures, rising global interest rates, and the threat of a decline in exports due to weakening economic activity in trading partners such as China. The government needs to maintain domestic growth momentum while maintaining people’s purchasing power,” he said.

 

To maintain purchasing power, Myrdal hopes that the government will hold fuel prices until inflationary pressure subsides or around September. For the record, the Central Statistics Agency (BPS) announced that Indonesia’s inflation skyrocketed by 0.95% (month to month/mtm) in April 2022, which was the highest level since January 2017. On an annual basis (YoY), Indonesia’s inflation shot to a level of 3.47. % or the highest since August 2019.

 

“Economic growth in the first quarter of this year indicates that the economic recovery continues but consumption growth, although increasing, has not returned to pre-pandemic levels,” he said.

 

Previously, BCA Chief Economist David Sumual and Bank Mandiri Economist Faisal Rachman also estimated that the Indonesian economy would still grow above 5% in the second quarter of this year.

 

“If we look at it until May, it’s still okay. Economic activity is getting better. Eid activities such as going home will provide big incentives and the impact will be better because last year there was no homecoming activity,” said David, to CNBC Indonesia.

 

Based on data from the Ministry of Transportation, around 85.5 million people travel back and forth during this year’s Eid. This condition is in contrast to two years ago when the government banned the homecoming tradition. The magnitude of the impact of going home on the economy has at least been reflected in the circulation of money during Eid.

 

Bank Indonesia noted that during the momentum of Ramadan and the Eid al-Fitr holiday in 2022, the realization of cash withdrawals increased 16.6% compared to the realization in 2021 from Rp 154.5 trillion to Rp 180.2 trillion. This growth was higher than the growth before the pandemic condition (May 2019) which was 9.21% (YoY).

 

However, several challenges were faced in the third quarter of this year, from the impact of high inflation, and declining purchasing power, to tight monetary policy.

 

“There is a risk of rising prices. If inflation increases and is difficult to control, there is a risk of a decline in purchasing power which makes consumption weaken. The spike in inflation could also make Bank Indonesia raise interest rates faster than expected so that investment could be disrupted,” said Faisal, to CNBC Indonesia.

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