5 Things You Need to Know About the Economic Recession – Minister of Finance Sri Mulyani Indrawati revised the projection of economic growth in the third quarter of 2020. According to him, in the third quarter, the Indonesian economy will likely experience a contraction of minus 2.9 percent to minus 1.1 percent. The overall economic growth at the end of the year according to him will also be in the range of minus 1.7 percent to minus 0.6 percent. According to him, economic growth in the third and fourth quarters will also be negative. Therefore, it is possible that an economic recession in Indonesia will occur.
Here are 5 things you need to know about the economic recession that is predicted to hit Indonesia:
1. Understanding economic recession
Senior economist at Gadjah Mada University (UGM) Muhammad Edhie Purnawan explained, economic recession is a term in macroeconomics which refers to a significant decline in economic activity. Where, he continued, the consensus of world economists stated that there was a decline in real economic growth for two consecutive quarters (diminishing GDP) accompanied by an increase in the number of unemployed. “However, with reference to the National Bureau of Economic Research (NBER) in the US, which usually officially announces a recession, it is stated that the decline in real GDP for two consecutive quarters is no longer the definition of a recession,”
During a recession, the economy struggles, people lose their jobs, companies make fewer sales and the country’s overall economic output declines. Experts say a recession occurs when a country’s economy experiences: negative gross domestic product (GDP) negative increase in unemployment rate decline in retail sales a measure of manufacturing income that contracts for a long period of time Recession is considered an inevitable part of the business cycle that occurs in a country’s economy .
2. What to prepare
In the midst of the current economic situation and the possibility of a recession, the public is urged to be wiser in managing their finances.
“It’s not wasteful, use your income wisely, try to keep saving so you can use it when needed,” said Piter. Senior economist Didik J Rachbini also suggested the same thing
In the midst of these very limited conditions, according to him, money is seen as “king”, in times of crisis it is really used wisely. Meanwhile, citing Good Housekeeping UK, here are four things you can do to keep your finances from being hit by a recession: Prepare an emergency fund Reduce unnecessary expenses Cut credit card bills Build a side business
3. What people can do during a recession
Financial expert Ahmad Gozali said the impact of the economic recession, especially on the lower classes, was the rising unemployment rate. Gozali said that there are several ways to survive in the midst of a recession, namely: Protecting sources of income As an employee, according to him, you should not be aggressive in changing jobs first before there is certainty that a new job is more stable. “For those who have businesses, reconsider expansion plans,” said Gozali. Have a reserve fund He said that the reserve fund should be maintained at 3-12 times the monthly expenditure in liquid form. “It means, if it’s less than that now, it can be added by reducing high-risk assets and increasing liquidity,” said Gozali.
Hold on to large purchases, especially credit. If you had a vehicle or home loan plan previously, it is necessary to study the risks again. “Is it safe enough to continue the plan. Don’t be too pushy, for example, using reserve funds to pay down payments,” explained Gozali. “The point is that reserve funds are becoming increasingly important, don’t use them for other things first. Even if you can add them,” he continued. Keep spending regularly “Because household consumptive spending on important things in Indonesia has become one of the dominant economic drivers,” said Gozali.
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4. Economic depression
If the economic recession continues, it will enter the so-called economic depression. According to UGM senior economist Muhammad Edhie Purnawan, the economic depression is a severe and prolonged decline in economic activity. “In macroeconomics, depression is generally defined as an extreme recession that lasts for three years or more or causes a decrease in real GDP of at least 10 percent,” said Edhi. According to him, depression is relatively less common than recession (which is milder).
Economic depressions tend to be accompanied by massive unemployment and low inflation. Even worse, it is called the Great Depression. “(The Great Depression) is the largest and longest economic recession in modern world history. This Great Depression began with the collapse of the US stock market in 1929 and did not end until 1946 after World War II,” he explained. Furthermore, he added, world economists and historians often refer to the Great Depression as the most devastating economic crisis in the twentieth century.
5. The impact of the recession
The following are some of the effects of an economic recession that have occurred in a country, namely: People lose their income One of the most dire consequences is that people can lose their income. This happened because the economic slowdown made several companies close and no longer operate. That way, many companies are doing Termination of Employment (PHK). The decline in people’s purchasing power With the large number of unemployed people, it also affects the level of consumption and people’s purchasing power decreases. This also has an impact on the company’s profits which have decreased. Investment The economic recession also affected investment instruments made by the public, one of which was in the financial market. This is due to a decrease in the value of a portfolio or asset such as a stock. Unstable dollar exchange rate An unstable dollar exchange rate will cause the value of the rupiah to weaken and have a direct impact on Indonesia’s import-export sector. Interest rates High interest rates will cause Bank Indonesia to withdraw the rupiah, which will also increase inflation.