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[ANALYSIS] Robust labor market and MSMEs as engine of recovery
To maintain this recovery pace, the effectiveness of the stimulus needs to be reassessed, along with improving the speed and performance of the targeting and delivery systems.
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![[ANALYSIS] Robust labor market and MSMEs as engine of recovery](https://img.jakpost.net/c/2020/04/30/2020_04_30_94127_1588227336._large.jpg)
Government subsidies for MSMEs. (JP/Hengky Wijaya)
I
ndonesia has officially entered a recession as the economy shrank by 3.49 percent on an annual basis in the third quarter of 2020 after recorded a 5.32 percent contraction in the second quarter. This marks the first recession for Southeast Asia’s largest economy since the 1998 Asian Financial Crisis.
The COVID-19 pandemic has restricted public mobility, increased individual precautionary behavior and decreased income in general, leading to a significant drop in domestic demand. This shock, in turn, has depressed the supply side of the economy, which forced many firms to scale back investment and production, thus laying off workers particularly in the sectors of manufacturing, trade and hospitality.
Meanwhile, more than half of those who remained at work must deal with lower income, which at the end of the day created a vicious circle leading to an economic crisis.
On the bright side, recent data suggest that the economy has shown signs of bottoming out, as the economy grew by 5.05 percent on a quarter-to-quarter basis in the third quarter. Transportation and retail activities further strengthened in October.
These were mostly a result of the government’s decision to relax its large-scale social restrictions (PSBB) and accelerate economic relief programs and stimulus funds disbursement.
To maintain this recovery pace, the effectiveness of the stimulus needs to be reassessed, along with improving the speed and performance of the targeting and delivery systems.
While efforts to flatten the COVID-19 case curve in Indonesia and social assistance must remain the top stimulus priorities, the rest of the stimulus spending needs to be more focused on reviving the real sector, including the labor market.
