KOMPAS.com – The impact of the corona virus pandemic in the economic sector has been felt by many people. Workers experience termination of employment, employees receive pay cuts, even those who work in the informal sector are also affected.
This condition triggers fears of an economic recession. But what is recession?
Launch Forbes, a recession is a significant decline in economic activity that lasts for months or even years.
Experts say that a recession occurs when a country’s economy experiences negative gross domestic product (GDP), an increase in unemployment rates, a decline in retail sales, and a contraction in the size of income and manufacturing over a long period of time.
Recession is considered an inevitable part of the business cycle or the regular rhythm of expansion and contraction that occurs in a country’s economy.
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When did the recession occur?
During a recession, the economy faces difficulties, people lose jobs, companies make less production and sales and the overall economic output of the country declines.
The point at which the economy officially falls into recession depends on various factors.
The National Economic Research Bureau (NBER) authority that is trusted to determine the start and end dates of a recession in the United States has its own definition of recession.
The NBER calls the recession a significant decline in economic activity spread across sectors, lasting more than a few months, usually seen in real GDP, real income, employment, industrial production, and wholesale-retail sales.
NBER is considered flexible in determining what is meant by recession and can be used to analyze various potential causes of recession.
For example, the corona virus whose emergence was never predicted turned out to have the potential to create a W-shaped recession, where the economy fell by a quarter, began to grow, then fell again in the future.
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Causes of recession
There is more than one thing that can cause a recession, from sudden economic shocks to the effects of uncontrolled inflation.
The following phenomena are some of the main drivers of recession:
1. Sudden economic shocks
The coronary virus pandemic that is killing the economy around the world, is a newer example of the sudden economic shakeup.
2. Excessive debt
When individuals or businesses take on too much debt, the costs to pay it off can grow to the point where they cannot pay their bills. Debt defaults and bankruptcy then reverse the economic conditions.
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3. Bubble assets
Excessive investment in the stock market or real estate is likened to an enlarged bubble. When the bubble bursts, there was an impromptu sale that could destroy the market and cause a recession.
4. Too much inflation
Inflation is a stable price trend and rises with time. Inflation is not a bad thing, but excessive inflation is a dangerous phenomenon.
5. Too much deflation
Deflation is when prices fall over time, which causes wages to contract, which in turn depresses prices. When the deflation cycle is not controlled, people and businesses stop spending, which consequently undermines the economy.
6. Technology change
Today, some economists worry that Artificial Intelligence (AI) and robots can cause a recession. This is feared to occur if they are able to do all categories of human work.
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Will it happen in Indonesia?
Quoting Kompas Daily, (12/06/2020) Indonesia must prepare to experience a deeper contraction in economic growth if the second wave of Covid-19 occurs. Economic contraction will have implications for the recovery process which is increasingly difficult and takes a long time.
The Organization for Economic Co-operation and Development (OECD), in the June 2020 Economic Projection report, Wednesday (06/10/2020) night, projected Indonesia’s economic growth this year to be minus 2.8 percent assuming a surge in the Covid-19 pandemic case in the country had taken place in mid-April.
In a bad scenario, Indonesia’s economy is projected to grow minus 3.9 percent if there is a second wave of Covid-19.
The second wave has slowed economic recovery. The economic recovery pattern of the RI does not form the letter V, but it does tend to wobble.
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In the headline report World Economy on a Tightrope In addition, the OECD warned the government to be careful about easing social restrictions because the road to economic recovery was still very uncertain and vulnerable to the second wave of infection from Covid-19.
The consequences of recovery will be heavier and longer. The risk of the second wave of Covid-19 also haunts almost all countries in the world.
The OECD projects global economic growth of minus 7.6 percent in 2020 if the second wave of Covid-19 occurs and regional restrictions are re-applied by a number of countries. New economic growth gradually recovered in 2021 to 2.8 percent.
The government projects economic growth this year to range from 2.3 percent to minus 0.4 percent. However, it is very likely that the economy will only grow in the range of 1 percent, influenced by the economic slowdown in the first quarter of 2020 and the potential for the second wave of Covid-19.
Also read: World Bank: As a result of the Pandemic, the Global Economy Will Have the Worst Recession in 80 Years
Preparing for the second wave of Covid-19
OECD Chief Economist Laurence Boone explained that flexible and agile policies were needed to avoid the second wave of Covid-19. The government must also provide a social safety net and support for the worst sectors.
Business people and workers need to be helped to adapt to the new era of normalcy.
“The country’s higher debt cannot be avoided. Debt-financed expenditures must be on target to support the most vulnerable and provide investment for the transition to a more resilient and sustainable economy, “said Laurence Boone.
Indonesia and China, including a handful of countries that still grew positively in the first quarter of 2020. Indonesia’s economic growth in the first quarter of 2020 was 2.97 percent.
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However, in the OECD’s projection, economic contraction will occur in the second quarter of 2020. Economic recovery is possible in the third quarter of 2020 if the government can increase the purchasing power of the people.
Economic contraction will paralyze the production side so as to encourage increased poverty and unemployment.
The OECD estimates that global unemployment will rise sharply from 5.4 percent in 2019 to 9.2 percent in 2020.
The Indonesian government projects that the increase in unemployment due to Covid-19 ranges from 2.92 million to 5.23 million people, and the number of poor people increases from 1.16 million to 3.78 million people.
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