The Minister of Finance of Indonesia Sri Mulyani said that 2023 was a year with relatively many risks and it has been seen from the International Monetary Fund (IMF) that this downward revision of economic growth was caused by quite high inflation.
This was conveyed by Sri Mulyani exclusively in an interview with Kompastv Journalists in Washington DC, United States.
He revealed that many countries had used all of their policies to strengthen the global economy in the world from economic conditions that had been hit hard by the Covid-19 pandemic which until now had not been completed and were shocked by the Russia-Ukraine war which sparked geopolitical tensions that made energy prices, commodity prices, and others fueled worldwide inflation.
Many people say that a global recession is in sight.
The world economy is in a dangerous condition and is expected to continue to deteriorate in the next 2 years and is caused by soaring inflation, high-interest rate pressures, economic slowdown, and the problem of global supply chain breakdown due to the Russia-Ukraine war which is the world's energy and food barn.
The complexity of global economic problems is expected to be solved through the collective action of the large G20 countries which affect 85% of the world economy. As well as interests between countries, including geopolitical conflicts, must be able to be bridged in the G20 forum so that the threat of a global recession can be prevented immediately.
Global economic growth, which should increase to 3% this year, is likely to fall to 2.6%. That growth is in danger of dropping back to 2%. A recession is at risk of occurring in the United States (US) and Europe.
"In the US there is an almost 60% chance of a recession, especially in Europe, even this year's winter conditions are not the worst, next year will be even worse because this is related to geopolitics, political economic fragmentation, and investment," said Perry Warjiyo. Governor of Bank Indonesia (BI).
This condition will be accompanied by high inflation. Global inflation this year is expected to rise to 9.2%. Inflation in the US was even close to 8.8%, in Europe, it was 10%, and yesterday in England it was close to 11%.
The US Central Bank or Federal Reserve (The Fed) raised interest rates by 50 basis points to 4.25% - 4.5%, the highest level in the last 15 years. The increase was smaller than the previous 75 basis points for the fourth time in a row.
However, the Fed has announced that interest rates will continue to rise until early next year. The Fed dot plot shows that elite Fed officials expect interest rates to be in the 5% - 5.25% range, meaning there is still another 75 basis points hike and possible 50 basis points hike in February 2023 and 25 basis points before the interval. The world's most powerful central bank has announced it will not cut interest rates until at least 2024. Longer, the US economy is in danger of sliding into recession.
Apart from the Fed, the European Central Bank (ECB) also raised interest rates by 50 basis points to 2%. In addition, the ECB announced that it will reduce its balance sheet by EUR 15 billion per month from March next year until the end of the second quarter of 2023. The reduced balance means that the ECB will absorb more liquidity. The goal is the same as other central banks, to reduce inflation.
But on the other hand, it must be paid with an economic contraction. This means that the ECB, like other central banks, will continue to raise interest rates next year. According to a recent survey of economists by Reuters, Europe is most likely to enter into a recession in the first quarter of 2023. The first quarter of 2023 is only days away, meaning it is not long before the Blue Continent will enter a recession if predictions are correct.
The 2023 recession is in sight, is Indonesia ready?
The Central Statistics Agency (BPS), economic growth in Indonesia throughout 2022 continues to increase amid the shadow of a recession. In the third quarter of 2022, the wheels of the economy grew 5.72% per year (yoy). Meanwhile, Bank Indonesia (BI) projects growth above 5.5%. In the third quarter, it was 1.81% higher, and cumulatively or from January to September 2022, the Indonesian economy grew by 5.4% year on year. The achievements of the last four quarters prove Indonesia's relatively strong position amidst global economic conditions. As we know, inflation, recession, and energy crisis have hit many countries. This is of course an achievement for all Indonesian people in uncertain global conditions, the trend is even getting stronger.
With growth figures as recorded by BPS, it shows that Indonesia's economy can be said to be very resilient. This figure can be a strong capital for the Indonesian economy to face the threat of a world recession which is expected to start in 2023.
The data revealed by BPS is also convincing. On a year-on-year (yoy) basis, BPS noted that growth in the third quarter of 2022 absorbed 4.25 million workers. In August 2022, there were a total of 135.3 million workers, including 92.63 million full-time workers, or an increase of 8.37 million people, part-time workers of 34.13 million people, or a decrease of 1.24 million people, and underemployment of 8.54 million people or decreased by 2.88 million people. Data results from the National Labor Force (SAKERNAS) conducted in August 2022.
The thing to prove Indonesia is safe from recession is.
- Consumer Confidence
Consumption is the backbone of the Indonesian economy. This is unavoidable because public consumption accounts for more than 50% of the Gross Domestic Product (GDP).
The condition of this economic backbone can be seen from the people's purchasing power. The Consumer Confidence Index (IKK) reached 117.2 in September 2022, or remains at an optimistic level, although lower than the previous month's 124.7.
In September 2022, consumer confidence was observed in all expenditure categories, which was not as high as the previous month, especially respondents spending Rp. 4.1-5 million. At the same time, consumers remain optimistic about current economic conditions, although not as strong as the previous month, when the Current Economic Index (IKE) edged down from 111.7 to 108.3 in August 2022.
- Inflation
Indonesia's inflation rate in October 2022 is indeed 5.71%. Even though inflation was lower than in the previous period at 5.95%, inflation was temporarily outside normal conditions.
It is known that energy prices have been revised several times in recent times. Among them, is the increase in Pertamax, Petalite, and Solar in early September 2022. On October 1, 2022, the price of Pertamax was then lowered.
If we look at the main drivers of inflation on an annual basis, the main drivers of inflation on an annual basis are gasoline, inter-city transportation, diesel, and households.
This implementation is closely related to the October IKK requirements which BI will soon issue. It should be noted that at the end of this year the impact of the increase in fuel prices will again be seen.
- Purchasing Manager's Index (PMI)
S&P Global reported that Indonesia's Manufacturing Purchasing Manager's Index (PMI) or manufacturing index in October 2022 fell. Indonesia's PMI is at the level of 51.8 or down 53.7 in September 2022.
Head of the Fiscal Policy Agency, Ministry of Finance, Febrio Kacaribu. Estimates that Indonesia's Manufacturing PMI will remain intact. He saw Manufacturing PMI growth in the expansionary zone amidst the global turmoil. He considered Indonesia to be relatively strong compared to Manufacturing PMI in several other countries which recorded further declines, such as Malaysia at 48.7, Taiwan at 41.5, and South Korea at 48.2.
However, the wave of layoffs should be watched out for, especially in labor-intensive industries. This is because the number of layoffs (PHK) and employees being laid off continue to increase in labor-intensive industries, especially garments or apparel, to footwear and toys. It is estimated that if the government does nothing or stays silent and does not act, labor-intensive industries will see up to 100,000 people (PHK) by December.
But in Indonesia, the recession has not yet come, layoffs are starting to hit.
- Export
Indonesia's trade balance has been a surplus for 29 consecutive months since May 2020. Indonesia's exports reached US$24.80 billion in September 2022, an increase of 20.28% yoy. Compared to the previous month, exports fell by 10.99%. This was due to the drop in the price of Indonesia's main export. In August 2022, exports totaled $27.91 billion, an increase of 30.15% (in 2022). The decline in exports is likely to continue next year globally.
However, Senior Economist Chatib Basri assesses that the impact of the global shock on Indonesia's exports will not be large. This is because Indonesia's exports only contribute 25% of its economic growth, compared to Singapore whose exports contribute 200% of its economic growth. As a result, the Indonesian economy will only slow down.
Looking at these indicators, the government seems still optimistic that Indonesia's economy will grow strongly in the third quarter of 2022.
The Ministry of Finance (KemenKeu) estimates that Indonesia's economic growth will increase by around 5.7% in the third quarter of 2022 amid the current global economic turmoil.
Head of the Fiscal Policy Agency (BKF) Febrio Kacaribu stated that Indonesia's economic recovery is still very strong after the negative growth of the Indonesian economy due to the Covid-19 pandemic.
According to BKF calculations, economic growth in the third quarter of 2022 will be higher than in the second quarter of 2022 which rose to 5.44% yoy. The Central Statistics Agency (BPS) will publish economic growth figures for the third quarter of 2022 on 7 November 2022.
Then what about the fate of the Indonesian economy in 2023?
Febrio revealed that the Indonesian economy will increasingly face "dark" global uncertainties in 2023. Therefore, it is considered that the 2023 State Budget must be more optimistic and vigilant.
On the other hand, Deputy Governor of Bank Indonesia (BI) Dody Budi Waluyo said Indonesia's economy will continue to grow by 4-5% next year.
According to IMF estimates, Indonesia itself still has a 5.3% chance this year and will slightly weaken by 5% next year. This growth is much faster than in China and the United States.
China is expected to grow by 3.2% in 2022 and increase slightly by 4.4% in 2023. In contrast, the US is expected to grow by 1.6% in 2022 and then decrease to 1% in 2023.
Indonesia is projected to be able to achieve economic growth in 2023 under the shadow of a global recession. In addition, economists also estimate the possibility of a recession in Indonesia is low.
Head of the Indonesian Stock Exchange (IDX) Research Division Poltak Hotradero said Indonesia's real economic growth fluctuated in the 2010-2022 period. However, overall, Indonesia was able to maintain economic growth above 5%, except during the 2020 pandemic.
Regarding the recession, Poltak said that Indonesia could experience a recession, one of which is due to a very severe shock in the financial sector. If you look at the situation in 1998, Indonesia experienced shocks in the financial sector. Because of shocks to the banking system not only in the financial sector but also very high inflation.
However, Poltak assesses that Indonesia's financial sector is in a fairly good position compared to 1998. Another factor is the global pandemic. On the other hand, Poltak hopes that there will be no more pandemics.
"If, for example, there is another pandemic, likely, Indonesia will still be able to record fairly good economic growth in 2023," said Poltak in the webinar "Economy Outlook 2023 & Inflation-Recession Pressure: What does it mean for insurance and media insurance", Tuesday (20 /12/2022).
Poltak explained this was because most of Indonesia's economy consisted of private consumption which grew by around 4-5%. This component is the driving force for 50% of Indonesia's economic growth.
"So it's hard to imagine the Indonesian economy going into a recession because half of its components are private spending and it's still growing by 4-5%. If [private spending] holds up, then Indonesia will most likely not enter a recession," he said.
Looking at these components, Poltak is optimistic that Indonesia's fear of a recession is very low. However, he acknowledged a slowdown in the global economy, which is usually associated with export-driven manufacturing, had also contributed to the recession.
At the same time, Indonesia's economic activities rely on local activities, namely activities that are produced and consumed domestically. So the impact of the global economic recession is relatively small.
"Indonesia's economy is growing and private consumption continues to drive Indonesia's economic growth, and with that investment needs and financing needs will increase because people's activities adjust to the new normal," he concluded.
Conclusion:
The year 2023 is relatively risky, the world economy is in a dangerous condition and it is predicted that it will continue to deteriorate in the next 2 years and is caused by soaring inflation, high-interest rate pressures, economic slowdown, and the problem of damage to global supply chains due to the Russia-Ukraine war that is the world's food and energy barn. Then what about Indonesia? Indonesia's economy will increasingly face "dark" global uncertainties in 2023. Therefore, it is considered that the 2023 State Budget must be more optimistic and vigilant. However, on the other hand, Indonesia's economy will continue to grow by 4-5% next year and Indonesia itself still has a chance of 5.3% this year and slightly weaken by 5% next year.
