Ari Kuncoro: Moving Under the Surface

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Ari Kuncoro: Moving Under the Surface

DEPOK – (1/12/2020) Professor Ari Kuncoro, Rector of the Universitas Indonesia, released his article published by Kompas Daily, an Economic Analysis rubric, entitled “Moving Under the Surface”. The following is the writing.

“Moving Under the Surface”

The Central Statistics Agency announced that the gross domestic product or GDP for the third quarter of 2020 grew by a minus 3.49 percent on an annual basis. While on a quarterly basis it grew by 5.05 percent.

This picture shows the worst conditions have likely been surpassed. In terms of quarterly developments, several sectors that had slumped previously – although not yet fully compensating for the contraction – showed faster growth with the letter V pattern in the third quarter. The V Pattern was driven by two sectors, which were badly hit in the second quarter, namely the transportation and warehousing sectors as well as the accommodation and restaurant sectors. The transportation and warehousing sector grew 24.28 percent in the third quarter compared to minus 29.18 percent in the second quarter. The accommodation and restaurant sector grew 14.79 percent versus minus 22.31 percent in the previous quarter. Other sectors show a similar pattern with a smaller  value.

The question is, can this macroeconomic trend be maintained in the fourth quarter of 2020 to compensate for the contraction in previous quarters? This is important because around 64 percent of GDP is generated by micro, small and medium enterprises (MSMEs). If the behavior at the micro level differs from one another, the macro data at the aggregate level does not reflect the actual behavior of the community, making it difficult to use it as a policy basis.

PT Bank Rakyat Indonesia (Persero) Tbk, which has a priority on micro sector services, launched an early indicator index that measures the business activities of MSME players, namely the BRI Micro and the SME Index (BMSI). This index is consistent with the concept of macroeconomic analysis based on microeconomic behavior (Zouache, 2008). The micro sector is a household / family production unit with consumption and production activities under one roof (Wagener and Zenker, 2020). Social assistance to production households / families will have an impact on the behavior of production, consumption, investment and risk appetite which at a macro level will affect economic growth.

The index predicts that there has been an ongoing stretch in the economic recovery under the surface, consistent with the GDP data published by BPS. Although still in the form of expectations, business components that are oriented towards preparation for production expansion, such as ordering and volume of input goods, volume of finished goods inventories, and investment activities, have shown significant improvements, such as the letter V pattern in the fourth quarter of 2020 compared to the previous quarter. All indexes are more than 100, which means they are in the optimistic zone. Compared with the index in the third quarter that was an average of 30 points, which means that there has been a turning point in the third quarter of 2020.

Relaxation of large-scale social restrictions (PSBB) really helps stretch the trend. This can be seen from almost half of the respondents (48.9 percent) claiming to be able to pay principal and interest installments without the stimulus. The existence of a stimulus significantly increased this ability to 57.9 percent of respondents.

Maximizing leverage

The impact on the purchasing power of the subsurface has been seen in the purchase of durable goods, particularly motorbikes. Sales in July reached 282,205 units, up 67.9 percent over the previous month and increased again by 8.5 percent in August. In September, 380,713 units were sold or accelerated by 20 percent. Monthly sales of low-cost car types had increased by 32.17 percent and 20 percent in August and September, although then only increased 1 percent in October. This increase made the transportation equipment subsector the highest growth in the manufacturing sector, namely 17.48 percent on a quarterly basis in the third quarter. This condition boosted the overall quarterly manufacturing growth of 5.25 percent compared to minus 6.49 in the second quarter.

This data is supported by the Consumer Confidence Index (IKK) published by Bank Indonesia. The expenditure group of Rp1 million-Rp 4 million has a tendency to consume which has increased since July. In October 2020, this group spent 69.4 percent of income on consumption and this is higher than the expenditure group above it. The comparison of macro data and the BMSI microbehavior index illustrates that a fast recovery ala the letter V can occur if the middle-lower class of society has an increasing tendency to consume.

Expectation management

In Europe, pandemic management policies are no longer black and white, but tend to be on a spectrum. The middle-lower class people need more physical interaction to make a living.

To deal with the  pandemic, Indonesia has three complementary strategic lines of defense. First, PSBB as an umbrella regulation is needed to maintain the demand-side interactions and economic production. Meanwhile, the recovery of the national economy is needed as a source of leverage for the undercurrents as well as to guard the trust and continuity of the circular flow of national income. Without the recovery of the national economy, the economy will be like an airplane flying at too low a speed that loses lift. Too much loss of momentum will make the recovery process longer and more expensive. The ideas that break through are health-oriented policies, such as wearing masks, washing hands with soap, and maintaining distance, vaccination, and long-term research on Covid-19 to restore public expectations without exception. At this stage, the national economic recovery can strengthen the domestic health industry and maximize leverage. Management of expectations at this stage is very important so that economic recovery does not turn into a W pattern. (Hjtp)

Source: Kompas Daily. Edition: Tuesday, December 1, 2020. Economic Analysis Rubric. Page 1 continues to Page 15.

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