Finance Minister Sri Mulyani Indrawati stated that the worst-case scenario for Indonesia’s economic growth would be in the range of 0 percent to minus 2 percent in the third quarter of 2020. This means that Indonesia will enter the brink of recession due to experiencing negative growth in two consecutive quarters.
Ani, her nickname, said that the negative projection is due to the government’s view that the economic activity of the community and the business world, which has begun to recover since June 2020 is apparently not strong enough to continue in the third quarter.
She said several business sectors have turned positive, but many had returned negative, much like during the mid-period of the coronavirus (Covid-19) pandemic outbreak in the country.
“We saw that in the third quarter, the down side still showed a real risk, so for the third quarter our outlook is between 0% and negative 2%. Negative 2% because there is a shift from the movement that doesn’t seem very solid, although there are some that have been positive” said Ani during a virtual press conference of the National Budget on Tuesday (25/8).
The state treasurer said that negative growth in the third quarter may have occurred because the level of public consumption was still quite weak, despite receiving social assistance (bansos) from the government. The level of public consumption was recorded at minus 5.51% in the second quarter of 2020.
Meanwhile, the distribution of the budget for handling the impact of the Covid-19 pandemic and the National Economic Recovery (PEN) program for social protection was IDR 93.18 trillion as of August 19, 2020. This was equivalent to 45.69% of the limit of IDR 203.91 trillion.
“But it cannot only be from social assistance to leverage consumption to close to zero percent if the middle and upper classes have not recovered their consumption spending. If only from social assistance, growth is high, but still cannot restore the consumption function,” she explained.
Apart from public consumption, the former World Bank managing director sees that the investment contribution is not optimal. In the second quarter, investment growth contracted by 8.61%,. This must be increased to prevent the economy from returning to negative territory in the third quarter.
“The key is consumption and investment; if consumption and investment are still in the negative zone, even though the government is all out in terms of spending, it will be very difficult to enter into the neutral zone at zero% in 2020” she explained.
Furthermore, for the rest of this year, Ani estimates that the country’s economy will operate in the range of minus 1.1% to 0.2%.
“We will see if consumption in 2020, especially in the third and fourth quarter, can return to the neutral zone at least or even slightly positive” she concluded.
Previously, the Indonesian economy contracted by 5.32% in the second quarter. If the economy in the third quarter returns to negative territory, Indonesia will follow several countries such as Singapore, South Korea, and the United States into recession.