JAKARTA, INDONESIA — Indonesia’s economic growth contracted by 5.32 per cent in the second quarter of 2020, according to Indonesia’s Central Body of Statistics (BPS).
The figure is higher than the government’s and economists’ previous estimates, which stood at around 4.72 per cent.
The negative growth was the first recorded since 1998 when Indonesia was one of the countries affected by the Asian financial crisis.
During the COVID-19 pandemic, Indonesia’s growth only stood at 2.97 per cent in the first quarter of this year.
Deflation in Indonesia in July reached 0.10 per cent — the inflation rate from January to July (year-to-date) stood at 0.98 per cent and 1.54 per cent on year-on-year.
Deflation shows decline in purchasing power in the wake of COVID-19
Generally speaking, deflation occurs when the prices of goods and services fall. Various factors can trigger such a situation, such as low supply and demand due to the pandemic that has infected more than 18 million globally.
“Deflation shows a decline in purchasing power. The pandemic has lowered people’s consumption as we see spending on electricity, food and beverages dropped,” economist Fadhil Hasan told TOC on Wednesday (5 August).
Interestingly, the pandemic has also pushed up the prices of luxury bikes, as many people are buying bicycles to maintain their fitness levels. However, the impact of the increase in bicycle’s price is not that significant, given that only middle-class and upper class people have the economic power to make such purchases.
Transportation is the hardest-hit sector during the outbreak
The COVID-19 has forced people to restrict their outdoor activities, severely affecting some of the business sectors. The BPS data showed that the transportation business had contracted the most during the pandemic at 30.84 per cent.
Social restriction measures — which have forced people to study and work from home — has ruined income of taxi drivers and application-based drivers and riders.
“Before the pandemic, I could earn Rp 700,000 a day. During the pandemic, I waited from early morning until 6.00 pm, and yet there will still be no passengers at all,” a taxi driver in Depok in West Java told TOC last week.
A former app-based rider told TOC that he is opting to work as a courier staff member for an app-based shopping service, as he could not take passengers during the implementation of social restriction.
Accommodation and food & beverage (F&B) service sectors contracted 22.31 per cent.
However, agricultural sectors grew 2.19 per cent thanks to the shift in the harvest period, from the April-May period to the March-April period, Mr Fadhil said.
Growth in the communication and information sector also rose as people become heavily reliant on Internet connection to study and work from home. This sector rose 10.88 per cent in this year’s second quarter, up from 9.60 per cent in the same period in 2019.
Government spending can boost the economy
President Joko Widodo has repeatedly called for effective government spending aimed at recovering the economy and mitigating the impact of the health crisis.
The BPS data showed that the government spending on year-on-year in the second quarter contracted 6.9 per cent, while in the same period last year during the election, the absorption of government spending hit 8.23 per cent.
“The government expenditure must focus on healthcare, social aid for the affected people, and assistance for small and medium enterprises. The government spending can push household consumption too,” Mr Fadhil added.
Household consumption is still the country’s economic backbone, contributing 57.85 per cent of the growth. However, the consumption level contracted by 5.51 per cent.
The government is planning to distribute financial aid to workers with a monthly salary under Rp 5,000,000 (S$472.57), aimed at pushing the consumption.
COVID-19 mitigation can play a role in recovering the economy
Mr Fadhil from INDEF explained that a country will enter a recession if the growth in the third quarter of the year contracts.
Previously, the world’s developed economies such as Singapore, South Korea, and Australia have confirmed that they are entering a recession. The USA, as one of the world’s economic powerhouses, announced that its growth in the second quarter contracted 32.9 per cent.
While strict lockdowns such as those imposed in China, Italy, and Spain hurt the economy, such a measure can help mitigate the impact of COVID-19 on the economy even though it may take years to recover.
Australia and China are imposing a lockdown again due to the rise in the new COVID-19 numbers. Vietnam — once hailed for recording a zero death due to the COVID-19 — recorded its first COVID-19-related death after three months.
“Where a country’s economy can recover will depend on several factors, such as consumption level, government spending, and how pandemic mitigation is going. Is there a second wave? That’s what we should anticipate. If there is no second wave, the recovery may be faster,” Mr Fadhil stated, wrapping up the interview.