Economists define a recession as contractions in two consecutive quarters, marking a significant decline in economic activity spread across the economy.   

This means there are fewer jobs, people are earning and spending less and businesses have stopped expanding or even shut down.

Individuals and businesses in tourism, transportation, accommodation and food and beverage may be feeling the greatest pinch as Statistics Indonesia (BPS) data show that they were the worst-performing sectors in the third quarter this year.

The transportation and warehouse sectors contracted 16.7 percent from a year ago as people stayed at home, while the accommodation and food and beverage sectors declined 11.86 percent as diners avoided restaurants and travelers avoided hotels.

Only 3.56 million foreign tourists have visited the country this year as of September, down 70.57 percent from the same period last year, BPS data show. The economic crisis will also hit the informal and service sectors hard, according to several economists.

As a result of the pandemic, the Indonesian economy shrank 3.49 percent in the third quarter after contracting 5.32 percent in the second quarter.

On that basis, millions of individuals have been laid off, furloughed or taken pay cuts, causing weaker demand for goods and services sold by micro, small and medium enterprises (MSMEs) and large corporations.

The government estimated earlier this year that an additional 4 million Indonesians will fall into poverty and 5.5 million will lose their jobs during the pandemic. The numbers could be even higher depending on how the crisis unfolds.

What does the recession mean for you?

During a recession, businesses usually feel the impact of reduced goods and services and therefore limit their operations and cut costs, including human resource costs, which could result in employers cutting workers’ salaries or laying them off.

You may already be feeling the impact of living through this recession – whether you have lost your job, taken a pay cut, put your monthly installments on hold or decided to rein in your spending.

“We do not know for sure when the recession will end as the coronavirus remains,” said Center of Reform on Economics (CORE) Indonesia research director Piter Abdullah.

“People should be wiser by reducing unnecessary spending while at the same time avoid being held back by virus fears to help save the economy.”

Otherwise, the country could see a prolonged recession and more people may lose their jobs and fall into poverty, making it harder for the country’s economy to recover, he said.

Furthermore, finding a job during a recession can be tough, as more people are on the hunt for work, while many businesses have hit the brakes on hiring.

“The competition will be much more fierce as they will have to fight it off not only with other young candidates, but also with job seekers who were laid off because of the crisis,” SMERU Institute researcher Muhammad Adi Rahman said.

Are we past the worst of it?

More than 75 percent of workers who stopped working in May have now returned to work, 70 percent of whom returned to the same jobs, the Finance Ministry’s Fiscal Policy Agency head, Febrio Kacaribu, said recently.

Economic indicators such as the purchasing managers index (PMI), retail sales and the consumer confidence index have shown that the economy has gradually recovered from the slump recorded in April and May, just not to the levels seen before the coronavirus outbreak.

The manufacturing gauge, the PMI, rose to 47.8 in October from 47.2 in September and has risen from its lowest level ever of 28.6 in May. An index reading above 50 indicates expansion while below 50 reflects contraction. Both retail sales and the consumer confidence index have also rebounded.

But that does not mean the economy is heading toward a healthy recovery. As long as the pandemic remains, the economy may not return to its pre-pandemic levels, according to Bank Permata economist Josua Pardede.

This year’s economic prospects are bleak as business investment remains limited, commodity prices remain sluggish and the upper-middle income class, which contributed to 45 percent of household spending, avoid spending on durable goods, he told The Jakarta Post in mid-October.

“Indonesia’s economy is on track for a slow recovery over the next few months,” he said on Thursday. “The main issue is that upper-middle class citizens have held back on consumption amid all the uncertainty.”

The economy was likely to contract further by around 1 to 2 percent in the last three months of the year and it may continue to decline in the first quarter of 2021, Josua went on to say.

“The recovery will not be strong before vaccines are available and the pandemic is under control.”

What would be the catalyst for economic recovery?

Getting the coronavirus pandemic under control is the key to ensuring a healthy economic recovery.

Bank Mandiri economist Andry Asmoro said recently that there were many variables that could point to full economic growth for Indonesia next year given the government’s stimulus packages, ample global liquidity, low interest rates and huge demand for goods and services.

The government has prepared a Rp 695.2 trillion (US$47 billion) stimulus package to revive the economy despite the sluggish spending.

Bank Indonesia, meanwhile, trimmed its benchmark interest rate by 100 basis points this year to 4 percent to support the economy.

However, some risks remain, from the continued rise in coronavirus cases, Andry said. “That may result in flattening economic recovery and more social restrictions, which we are currently seeing.”

Furthermore, another rise in coronavirus cases could trigger an outflow of foreign funds and cause a prolonged economic contraction, he said.

“Therefore, the government must contain the pandemic in order to have a better economic recovery path going forward.”

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