Optimism Overshadowed by Recession

KOMPAS/NIKSON SINAGA

Minister of Tourism and Creative Economy Sandiaga Uno talks with micro, small and medium enterprises in Medan, North Sumatra, on Tuesday (20/9/2022). Sandiaga said MSMEs and the creative economy are facing inflation and the threat of a recession.

The rising risk of recession in rich countries has cast a shadow over many countries, including Indonesia. We must therefore anticipate a decline in exports by strengthening oru economic fundamentals.

With the high inflation in many countries, followed by their central banks’ move to raise benchmark interest rates, a global recession seems unavoidable in 2023.

The United States, the country with the largest economy in the world, is expected to experience a recession in 2023. Meanwhile, China, the world’s second largest economy, has continued with its zero-Covid policy to prevent new infections, which has caused a decline in the country’s economic activities and resulted in a slowdown in economic growth.

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The decline in growth of the world's two largest economies could affect the economies of many countries, including Indonesia. A slowdown in trade in goods and services is expected due to the decline in domestic consumption in these countries.

The Indonesian economy is in a relatively good position, because it is not at the top of the global supply chain. Supply chain disruptions around the world, as well as falling demand for goods and services in many countries, have not had much impact.

Our trade balance has been positive for the last two years to result in a surplus in the state budget.

Indonesia enjoyed a commodity windfall from the high prices of palm oil and mining products. Our trade balance has been positive for the last two years to result in a surplus in the state budget.

Although global oil prices have dropped to US$77-80 per barrel, the rupiah remains weak. The shadow of global recession has begun to affect the prices of raw materials, such as copper, aluminum, and tin. Indonesia is the main exporter of these three commodities.

KOMPAS/RADITYA HELABUMI (RAD)

Workers use a trolley to transport goods to an expedition service in the Jati Baru area, Tanah Abang, Central Jakarta, on Thursday (11/5/2020).

We are also facing a possible decline in food production in 2023 due to disruption in fertilizer supplies, especially allium and phosphate. Russia is one of the major suppliers of potassium. Western economic sanctions, although they do not include food and fertilizer, have disrupted potassium exports from Russia.

However, challenges always offer opportunities. Indonesia has comparative and competitive advantages as a tropical country. The rupiah’s weakening against the US dollar will benefit exports if Indonesia produces raw and auxiliary materials domestically.

Indonesia also exports textiles, rubber and related products like footwear, as well as electronics, forest products and automotive products.

Palm oil and derivative products are commodities that many countries still need. Indonesia also exports textiles, rubber and related products like footwear, as well as electronics, forest products and automotive products.

The government and businesses also need to work together to find new niche markets for unique products that involve high labor and generate added value, such as sustainably produced cocoa and coffee that have geographical indications e.

In the midst of global recession and market competition, it is important to maintain the people’s buying power, especially for food and energy. Increasing production, streamlining logistics, maintaining fair prices for micro, small and medium enterprises (MSMEs), farmers and fishers, as well as preventing malnutrition in pregnant women and children under 5, should remain the government’s priorities.

(This article was translated by Hendarsyah Tarmizi)