Jakarta –
Recession is a term in economics that has been used frequently since the COVID-19 pandemic hit. The economic recession is something that many countries around the world fear, including Indonesia.
In a CNN Indonesia report on July 15, 2022, there are several countries that are threatened with an economic recession, namely China, Japan, Mongolia, South Korea, Indonesia, and countries in Europe. Most recently, it was stated that the United States was hit by a recession.
What is an Economic Recession?
Definition Economic Recession
In the Big Indonesian Dictionary (KBBI), the definition of a recession is a sluggishness in trading activities, industry, and so on (as if stopped) or a decline (retreating, diminishing) trading activities (industry).
Meanwhile, citing CNBC Indonesia, an economic recession is a significant decline in economic activity in a stagnant and long period of time, ranging from months to years.
An economic recession can trigger a decline in corporate profits, increased unemployment, and even economic bankruptcy.
Causes of the Economic Recession
Launching the Business Insider and CNBC Indonesia pages, there are five causes of recession, namely:
1. Economic Shock
Caused by an unexpected event that disrupts the economy at large, such as a natural disaster or a terrorist attack. Take, for example, the COVID-19 pandemic that has hit the world.
2. Inflation
Inflation is a condition of rising prices of goods and services during a certain period. Excessive inflation will cause people’s purchasing power to weaken and the production of goods and services to decline.
Economic inflation is very dangerous because it will trigger unemployment, poverty, and lead to a recession.
3. High Interest Rate
High inflation will also make the central bank raise interest rates. This high interest rate serves to protect the value of the currency. If it happens on a large scale, banks can collapse.
4. Deflation
Apart from inflation, deflation can also cause an economic recession. Deflation is characterized by a decrease in the price of goods or services.
At first glance, deflation can increase people’s purchasing power, but if it occurs excessively it will harm providers of goods and services.
5. Asset bubbles
An asset bubble is a phenomenon that occurs in the stock and property markets. In this case, if there are investors who make rash decisions, it can damage the market.
6. Technological Development
Indirectly, the rapid development of technology can also cause a recession. For example, Artificial Intelligence (AI) and robots will replace many human jobs.
If this happens en masse and uncontrolled, many workers have the potential to become unemployed.
Example of an Economic Recession
An example of an economic recession can be seen from the crisis that hit Indonesia in 1998. At that time, the currency crisis in several Asian countries spread to Indonesia.
As a result, the foundation of the national economy is fragile and experiences negative growth. Indonesia’s inflation soared to 77% while the economy contracted more than 13.7%.
The crisis later became the trigger for the collapse of the New Order power which had been in power for 32 years in Indonesia.
In addition, there is also another example of an economic recession in 2020 where Indonesia’s economic growth experienced a minus for two consecutive quarters.
The Central Statistics Agency (BPS) noted that Indonesia’s economic growth in the second quarter of 2020 was minus 5.32%, then in the third quarter of 2020 economic growth was also minus 3.49%. This makes Indonesia declared experiencing recession.
Watch Videos” ‘Exit Strategy’ From Recession“
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