A Recession Does Not Need To Be Dramatized, This Is The Reason, According To The UGM Economist

Illustrated. (Irfan Meidianto / VOI)

JAKARTA - Professor of the Faculty of Economics and Business, Gadjah Mada University (UGM) Prof. Dr. Insukindro, MA, said that society and the media do not need to dramatize a recession. Recession, according to him, is something that is often experienced by countries in the world and is part of a country's economic cycle.

"Many newspapers use the words recession gap, in fact there is nothing like that. Whether recession, inflation, economic growth, etc., can happen at any time," he said as quoted from the UGM website. Friday 25 September.

He explained that the most popular definition called a recession occurs when the decline in Gross Domestic Product (GDP) or Growth Domestic Product (GDP) occurs for two consecutive quarters. However, The National Bureau of Economic Research (NBER) itself does not define a recession as such, but rather as a significant decline in economic activity that lasts for more than a few months.

"As far as it is understood, if two consecutive quarters of GDP decline, it is a recession (Julius Shiskin concept, late 1974). In Indonesia, many bureaucratic economists and academics consider the concept of recession already used in America, whereas in fact NBER does not use the concept. that, "he explained.

The size of this economy, continued Insukindro, is generally related to the economic cycle or business cycle. Using the business cycle, in general, a recession begins when economic activity reaches a peak and ends when the economy is at a trough.

Recession, he explained, is part of the economic cycle which can be predicted by economic fluctuations (fe). A value less than zero means a recession, and conversely a value greater than zero means expansion. With this understanding, according to him, Indonesia actually experienced a recession in the first quarter of 2020.

In a research he conducted some time ago using fixed price GDP in 2010 and the HP Filter approach and Linear Trends, Insukindro found that quarterly economic fluctuations in Indonesia were both negative and positive.

"The period of 2020 in the first quarter and second quarter of Indonesia has negative economic fluctuations which means a recession. At the same time, the economic growth quarter to quarter in Indonesia is also negative," he said.

He revealed that the government, economists and the mass media need to stop the narrative that portrays a recession as a frightening condition that Indonesia has never experienced before, or something that has just happened because of the COVID-19 pandemic.

However, he acknowledged that the pandemic is making the current recession in Indonesia sharper than in previous years, and this is a serious problem that needs to be addressed.

"The recession itself can occur almost every year. What will be a problem if the decline is deep and long," said Insukindro.

To detect a recession, economists like Hubbard use the output gap formula measured by potential real GDP, while others like Gordon measure economic fluctuations using natural real GDP.

However, in reality the output potential or natural real GDP cannot be observed so it is often proxied by using the estimated output. Hence he then developed the equation for economic fluctuation. This fluctuation will later reflect a recession.