The United States economy contracted for two consecutive quarters. Senior economist and former finance minister Chateeb Basri warned that the US economic slowdown could have an impact on the domestic economy.
The US economy is in a technical recession after falling 0.9% in the second quarter. The US economy also shrank 1.4% in the first quarter of 2022.
“If the US economy slows down, it will have an impact on European countries as well as China. Meanwhile, China has a very important role to play, especially for countries like Indonesia and Australia. as resource producing countries.” Minister Chateeb Basri in an online discussion, Wednesday (3/8).
The US and China are the two destination countries for Indonesia’s commodity exports. If the economy slows, demand for Indonesian goods will also decline. When demand falls, commodity prices may also fall in the future. whereas, booming Commodity prices have become one of the engines for the Indonesian economy, including government finance.
Another problem, according to Chateeb, is monetary tightening that can stifle growth. High inflation in many countries could prompt central banks to take aggressive measures to tighten monetary policy, leading to turmoil in emerging market countries such as Indonesia.
Although it is claimed that inflation is still under control in Indonesia, Chatib sees inflation likely to increase in the future. With inflation continuing to climb, he believes many central banks, including Indonesia, will follow the Fed’s lead in raising interest rates.
“Maybe Bank Indonesia also needs to take a monetary tightening cycle later this year or maybe next year. So, from an economic perspective, we will see the possibility of an economic slowdown.”
He explained that monetary tightening means that interest costs on loans have become more expensive. This situation would encourage diluting investments.
Furthermore, Chatib reminded, the challenges on the fiscal side will be even tougher next year. The government must reduce the budget deficit to less than 3% or in other words, fiscal space will be sharply limited. On the other hand, the government also needs a sufficiently large budget to protect the vulnerable from rising prices through the provision of subsidies.
“I can see that monetary tightening will happen soon or maybe next year along with the possibility of fiscal contraction. The implications are both internal and external, there will be a kind of strong X for Indonesia as well as other developing countries, hence the recession. There is danger of,” said Chatib.
However, he said there was still optimism. The balance of trade surplus helped maintain the stability of the rupee. Capital flows, especially in the stock market, are still happening. According to him, this situation makes Indonesia more fortunate than other countries.
Moreover, the slowdown is also likely to be only temporary. The reason is that once the central bank manages to control inflation with its various policies, the economy will start moving forward again.
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