Jakarta, CNBC Indonesia – The situation throughout 2022 is all uncertain, various developments are causing concern. The meeting of the energy, food, and financial crises led to a global recession.
Institute for Development of Economics and Finance (Indef) economist Abdul Manap Pulungan views that the global recession has occurred since the beginning of this year, because at that time, the global economy experienced a decline in growth followed by an increase in inflation or stagflation.
Stagflation is a condition in which economic growth tends to stagnate or even decline, accompanied by high inflation. The increased risk of stagflation makes an economic recession difficult to avoid. The risk of stagflation is quite large with consequences that have the potential to disrupt the economic stability of low- and middle-income countries.
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“Stagflation will be very dangerous because from the demand side it will erode people’s purchasing power, while from the supply side, there will be a risk of termination of employment (PHK),” Abdul explained to CNBC Indonesiaquoted on Sunday (10/7/2022).
When inflation increases, it means that the cost of production inputs for the company will increase. On the one hand, producers cannot directly increase the price of basic goods, because purchasing power is low.
Abdul also explained that the current global economic turmoil will affect the weakening of the rupiah exchange rate or depreciation. When depreciation occurs, all economic agendas will be affected.
“The influence on rich people or entrepreneurs can be seen from the surge in the production costs of their companies,” explained Abdul. “For us, the common people, we are affected by the price of the basic goods we buy, most of our food ingredients are imported, such as soybeans.”
According to Abdul, the imminent economic crisis will have a more severe impact than the 1998 and 2008 crises.
“The 1998 crisis only occurred in the Asian region. Meanwhile outside Asia, the economy rebounded because at that time there was an increase in commodity prices. Likewise in 2008, the US was most significantly affected, but only the financial sector was affected, while the real sector could move,” explained Abdul.
Now, what is happening now, the situation is reversed, when the pandemic hit all sectors of the economy experiencing a decline. In addition, there was the Russian-Ukrainian geopolitical turmoil, which was followed by soaring commodity prices and inflation.
“It is the accumulation that concludes the current situation is not good. It will be worse than the ’98 and 2008 crises,” he said.
Therefore, Abdul suggested that the authorities continue to improve the domestic economy. Commodity prices are regulated by the government, so that they must be restrained first.
The implication is that it will undermine fiscal growth, but if commodity prices are allowed to be transmitted to consumers or the public, Abdul said the Indonesian economy will find it difficult to grow and society will suffer even more.
Previously, the World Bank, in its latest report entitled Global Economic Prospects June 2022 edition, described the complexity of current conditions. They warned that an economic recession would come along with stagflation due to the Covid-19 pandemic, plus the Russo-Ukrainian war.
The World Bank even mentions that the current situation has many similarities to the 1970s, where persistent supply side disruptions were preceded by accommodative monetary policies in developed countries.
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