New Normal of the Economy

KOMPAS/RONY ARIYANTO NUGROHO

Long lines of KRL commuter train passengers are seen at Bogor Station, Bogor city, West Java, Monday (8/6/2020). A number of workers and economic actors from the Greater Bogor region began to leave for Jakarta because a number of offices and economic activities began to open during the Transitional Large-Scale Social Restriction (PSBB) in Jakarta.

Preparations for “new normal” continue in various aspects. Health Ministerial Decree No. HK.01.07/MENKES/328/2020 regulates health protocols in offices and industrial estates that must be followed by all parties. Finance Ministerial Decree No. 223/2020 regulates the implementation of flexibility at workplaces. Likewise, a circular was issued by the Administrative and Bureaucratic Reform Ministry concerning the work system of state institutions in the New Normal Order.

Companies like Twitter have announced that working from home is no longer temporary but permanent. The adoption of strict health protocols and new ways of working is only a symptom of more fundamental changes, namely starting from behavior changes to economic structures that include consumption, distribution and production.

In the first quarter of 2020, the Indonesian economy only grew 2.97 percent annually. In fact, the large-scale social restrictions (PSBB) only came into effect in April 2020, so growth in the first quarter did not reflect the impact of the PSBB. Jakarta implemented PSBB starting on 10 April, followed by Depok, Bogor and Bekasi on 15 April. While Greater Tangerang area started on 18 April and Greater Surabaya area started on 28 April.

Also read : Enforcing New Normal

Although not yet reflecting the impact of the PSBB, the pattern of economic growth in the first quarter could be an early indicator of changes in post-epidemic economic behavior. In the first quarter, the financial and insurance services sector still grew 10.67 percent, health services and social activities 10.37 percent and the information and telecommunications sector grew 9.81 percent. While other sectors grew low and even some sectors showed near-zero percent growth.

The results of a social demographic survey on the impact of Covid-19 by Statistics Indonesia (BPS) on 1 June 2020 illustrate the situation people are facing in the epidemic. As many as 41.91 percent of respondents had experienced a decline in income since the epidemic occurred. Some of them were temporarily furloughed. In fact, among respondents who were still working, 35.78 percent, they experienced a decrease in income. The lower their income, the more their income dropped.

On the other hand, 56 percent of respondents saw their spending increase, and even 44 percent of respondents said their spending had increased by around 25-50 percent. The increase in expenditure was largely due to changes in food expense.

Also read: New Normal, Its Trace and Message

The drop on the demand side was accompanied by a number of changing patterns, such as an increase in online spending and a focus on specific items expenditure. When viewed from the supply side, there are several sectors with demand surges, such as foodstuff with a 51 percent increase, health with a 20 percent rise, phone credits with a 14 percent increase, food/drinks up 8 percent and electricity 3 percent

Kompas

Shoppers wear mask walk outside a shopping mall in Kuala Lumpur on May 28, 2020, as sectors of the economy are being reopened following restrictions to halt the spread of the COVID-19 coronavirus.

Changes in economic behavior

Dennis J. Snower, in a paper entitled The Socioeconomics of Pandemics Policy (Brokings Institution, 4/2020) suggested the need for policy adaptation to anticipate changes in economic behavior so as to prevent "Great Economic Mismatch". Physical and social restrictions have changed economic behavior, especially in terms of consumption, which demands changes in production and distribution. If there is no change, consumption and production have the potential to be disconnected.

In addition to the survey results, BPS also released a study entitled Big Data Review on the Impact of Covid-19 with Google\'s mobility index as one indicator. During the enforcement of the work from home policy, mobility at work fell by 15 percent, whereas after the PSBB policy it dropped by 73 percent. Activity at home after the working from home policy rose 8 percent and after PSBB it rose 34 percent. Activities in retail and recreation areas fell 16 percent after the working from home policy and it dropped 61 percent after PSBB. While mobility at the grocery store was down to 3 percent after working from home and it dropped 46 percent after PSBB.

Also read : Three Phases to Recovery

Changes in behavior need to become a reference for economic recovery policies. The focus of current government policy is still in the health sector in order to reduce the risk of death and support the community to survive economic risks. However, the increase in the cost of national economic recovery must be designed to anticipate changes in post-epidemic economic patterns.

The 2020 budget deficit rose again from 5.07 percent to 6.34 percent of gross domestic product (GDP), equivalent to Rp 1.03 quadrillion. Such change is regulated in the revision of Presidential Regulation No. 54/2020. Fiscal policy is more focused on ensuring that demand does not decline more sharply. However, the rest must have a comprehensive cross-sector recovery strategy, covering the production and distribution sides. The pattern of investment and funding will automatically change drastically along with changes in economic behavior.

First, changes will occur on the production side related to the types of products that will increase demand in the post-pandemic following the required health procedures, such as packaging and how to distribute them. Secondly, investment in various sectors is needed to support post-pandemic production so that the increase in demand does not cause shortages. Third, it facilitates the growth of new industrial ecosystems that are needed post-pandemic, such as online distribution and payment.

Also read : Economy in Post-Pandemic Era

Looking at the various indicators, it would be difficult for the economic recovery to take place quickly (V-shape), rather it would take a longer time (U-shape). Fiscal policy plays the role of buffer so that demand does not decline more sharply. However, recovery must be drawn from the production side by planning recovery scenarios that are relevant to changing economic behavior.

KOMPAS/TOTOK WIJAYANTO

A Prasetyantoko

The Office of the Coordinating Economic Affairs Minister must play a role in navigating economic recovery from the production side by adopting new post-epidemic standards. Very likely, many sectors are no longer relevant. Conversely, there are various new economic sectors with high relevance. That\'s the new normal in the economy.

A PRASETYANTOKO, Rector of Atma Jaya Catholic University, Jakarta.