Strong Signal From Sri Mulyani: Indonesia Will Follow Singapore To Enter The Abyss Of Recession
JAKARTA - The government, in this case the Ministry of Finance (Kemenkeu), signals that Indonesia will experience a recession in the third quarter of this year following Singapore. However, this does not necessarily mean the Indonesian economy is bad.
Finance Minister Sri Mulyani said the economy had shown improvement from the pressure of the COVID-19 pandemic. If the contraction occurs in the third quarter, the figure will be smaller than the previous quarter, which reached 5.32 percent.
"If technically in the third quarter we are in the negative zone, then a recession will occur. However, it does not mean that the conditions are very bad (from the second quarter)," he said at a joint meeting with the Budget Agency (Banggar) of the House of Representatives (DPR) RI, Monday, 7 September.
The state treasurer emphasized that Indonesia's negative economy in the third quarter would not be worse than other countries which are predicted to experience a sharp contraction.
"We are compared to other countries that are quite better off because other countries have contracted minus 20 percent," he said.
Sri Mulyani said that the economic contraction in the second quarter was contributed by a decrease in consumption which was close to minus 5.8 percent and minus investment of almost 8 percent. He hopes that the record of consumption and investment performance can improve in the third quarter.
"If now the economy has started to be positive, it means that it has improved compared to conditions in April, May and June. We hope that the third quarter which will consist of July, August, September, the indicators of economic growth will be better than the second quarter," he explained.
The government, said Sri Mulyani, is currently facing a tough challenge to raise growth so that in the third quarter of 2020 the figure will approach zero percent. The only way is to improve the performance of public consumption, investment and exports.
Furthermore, Sri Mulyani said, Indonesia's economy in the second quarter contracted considerably due to large-scale social restrictions (PSBB), and now there are concerns about an increase in the number of positive cases every day, so the government's estimate of economic growth could reach between zero percent and minus 2. percent in the III quarter.
"This means that we still (have) the possibility (of negative economic growth) even though government spending is accelerated, consumption and investment have not yet entered the positive zone because people's activities are not at all normal," he said.
As is known, in the second quarter of this year, Indonesia's economic growth contracted by 5.32 percent. If in the third quarter economic growth was still in a negative zone, Indonesia would officially enter the brink of recession.
In economics, a country can be said to be experiencing a recession if its economy is negative for two consecutive quarters. So, the determinant whether Indonesia will enter or not be in the abyss of recession is in the third quarter of this year.
The Central Statistics Agency (BPS) noted that in the second quarter on an annual basis, household consumption contracted 5.51 percent, gross fixed capital formation (PMTB) minus 8.61 percent, and exports minus 11.66 percent. Meanwhile, government consumption contracted by 6.9 percent, consumption for non-profit organizations serving households (LNPRT) was minus 7.76 percent, and imports contracted 16.96 percent.