Singapore and South Korea have announced that they are entering an economic recession due to severe pressure caused by the COVID-19 pandemic—a deadly virus with flu-like symptoms that has infected more than 16 million people globally.
The shrinking of the two Asian economic powerhouses’ growth for two quarters in a row this year is believed to have been a major factor.
Singapore’s economy contracted up to 2.2 per cent in the first quarter of 2020 and 41.2 per cent in the second quarter, data from the country’s Ministry of Industry and Trade showed. South Korea’s economy shrank to -1.3 per cent in the first quarter of this year and -3.3 per cent in the second quarter, the country’s central bank (BOK) estimated.
The Bank of Korea stated the country’s decreased growth since October 2017 was accelerated by the pandemic.
“The Korean economy has been downward since October 2017, and the coronavirus shock accelerated the speed of the economic downturn,” BOK director Park Yang-soo said.
Contracted economy, high unemployment rate among indicators of recession
In a recent phone interview with TOC, senior economist Fadhil Hasan from Indonesia’s Institute for Development of Economics and Finance (INDEF) said that a high unemployment rate and a contracted economy are among indicators of an economic recession.
“We can call it a recession if a country’s growth slips for two quarters in a row. We compare it year on year. However, a recession can be associated with high unemployment rate,” the expert told TOC.
According to the Central Statistics Agency (BPS), the number of unemployed people stood at 6.88 million in February, before the COVID-19 pandemic hit Indonesia.
Indonesia’s Chambers of Commerce and Industry (KADIN) predicted that the number of newly unemployed people may reach 30 million in the wake of the pandemic, given that the outbreak has hit almost all sectors, forcing companies to dismiss or furlough their employees.
“Many companies have decided not to lay off their employees, but they have furloughed their employees. Therefore, the data may vary if compared to the official figure,” the expert added.
Mr Fadhil–a former consultant for the World Bank–explained the differences of the 1997/98 Asia’s financial crisis, 2008 global crisis, and the COVID-19 crisis.
“The 1997/98 crisis started in Thailand, triggered by foreign debt. Then, the global crisis in 2008 occurred when commodities’ prices fell, but the impact was not that significant. [There were] no restrictions on people’s [economic] activity.
“The 2020 crisis — this health crisis — however, has severely affected all sectors, from big companies to small and medium enterprises. Social restriction measures have forced people to stay at home, forcing malls and offices to shut down temporarily,” Mr Fadhil added.
Indonesia is not free from recession
Indonesia has relaxed its large-scale social restriction (PSBB) measures to boost economic activity. However, the country is not free from the risk of recession.
Coordinating Minister for the Economy Airlangga Hartarto hinted that Indonesia will be on the brink of recession in the third quarter. The growth is predicted to reach -3.4 per cent in the second quarter and -1 per cent in the next quarter.
“Maybe the growth can be negative in the second quarter. If the growth is zero or above, let’s say 0.5 per cent, we are still safe from recession. However, whether the economy can still grow or not during the unexpected situation like this will rely on the effectiveness of government’s spending,” Mr Fadhil explained.
The government allocated Rp 641.17 trillion for national economic recovery and mitigation for people and sectors affected by COVID-19, Finance Minister Sri Mulyani announced last May.
Later, the government rose the budget to Rp 695.2 trillion for economic recovery.
President Mr Joko Widodo called for an accelerated budget spending for pandemic mitigation, adding that bold policies and breakthroughs are needed to tackle the pandemic.
Even though domestic consumption contributes 56 per cent to Indonesia’s GDP, government spending will play a crucial role in maintaining growth, said Mr Fadhil. He added that red tape and data revision had affected spending.
“[Let’s take the example of] the distribution of social aid or direct cash aid (BLT). The latest data may not be revised yet as many people who once had a job, now they have been laid-off. They may be eligible to BLT, but they have not been registered yet, ” Mr Fadhil said.
A daily worker in Depok in West Java told TOC a few months ago that he only received aid once because he and his family have not been registered.
Even he and his family did not receive any information about the automatic teller machine (ATM) that dispenses free bags of rice for eligible low-income people affected by the pandemic.
Indonesia’s stimulus is among the lowest in Asia
Data from Worldometer as at 20 July showed that Indonesia’s stimulus package is the third-lowest in Asia—only 4.2 per cent of its GDP.
Japan, Malaysia, and Singapore allocated 21,1, 20.8, and 13.0 per cent of their GDPs for the COVID-19 mitigation, respectively.
“Indonesia’s stimulus is relatively low because of its limited fiscal capacity. The economic recovery budget has caused the state budget to suffer a 6.35 per cent deficit. As a result, the government is busy finding other sources of funding,” Mr Fadhil added.
Nobody can predict when the economy will recover
When asked about when the economy will recover, Mr Fadhil preferred not to provide an estimate.
“The recovery may depend on several factors: How is the COVID-19 mitigation going? How is 3T (testing, tracing, and treatment) going? Then, whether the second wave is coming,” he said.
“We see countries like South Korea and Vietnam recording a rise in the number of new COVID-19 cases after several weeks. What about our trading partners? Singapore’s economy is dependent on export. Thus, when its trading partners are restricting their economies, the export will be affected,” concluded Mr Fadhil.