Recession in 2023, What Startups Should Do and Prepare for?

Recession in 2023, What Startups Should Do and Prepare for?

The causes and effects of the 2023 recession for Indonesia are being widely discussed. This is in line with the Minister of Finance, Sri Mulyani, regarding the world economy being confirmed to experience a recession in 2023. What is the impact on the Indonesian economy? Will it affect companies, especially Start-Ups in Indonesia? 

Before delving into the topic, what is a recession? A recession is a period of temporary economic decline during which trade and industrial activity are reduced. A recession is a significant decline in economic activity that lasts for months or even years. Experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period. Recessions are considered an unavoidable part of the business cycle or the regular cadence of expansion and contraction that occurs in a nation’s economy. In economics, a recession is a business cycle contraction when a general decline in economic activity occurs. According to Forbes, several factors cause a recession. First, there is a sudden economic shock. For example, the coronavirus outbreak, which shut down economies worldwide, is a  recent example of a sudden economic shock. Too much inflation, excessive debt, and technological change could cause a recession. 

Loosening monetary policy, usually by cutting interest rates, lowers the cost of borrowing and encourages spending and investment in the economy. Expansionary fiscal policy, such as increasing government spending or cutting taxes, essentially stimulates the economy using government funding, which is the way of Central banks around the world strategies to attempt to stave off an economic recession. 

Risk Of Recession 2023

Lately, high inflation has hit various countries, making the central bank aggressively raise interest rates. The United States central bank (The Fed), for example, has increased by 300 basis points this year to 3% – 3.25% and will continue. High inflation on purchasing power, while high-interest rates hampered expansion and consumer spending. As a result, a recession was in sight. The risk of a recession is getting worse as the Russia-Ukraine war becomes one of the triggers for the skyrocketing prices of crude oil, natural gas, and coal. As a result, energy inflation has become insane and spread to various economic sectors. Economist Nouriel Roubini, better known as Dr Doom, when he successfully predicted the 2008 financial crisis, is now projecting a recession will hit the United States by the end of 2022 before spreading globally next year. This, of course can have a negative impact on Indonesia, the financial sector could also suffer, as well as the real sector due to the world recession. 

“The world bank has said that if central banks around the world make quite an extreme increase in interest rates and together, the world will definitely experience a recession in 2023,” said Sri Mulyani, as Indonesia’s minister of finance in a virtual press conference on the KITA State Budget (26/26/2020). Sri Mulyani also reminded of the threat of a recession amid global economic turmoil. According to her, the world will undoubtedly experience a recession in 2023. This is because many countries in the world are raising their benchmark interest rates to extremes, and together can trigger inflation to a recession. 

What is The Impact of The Recession in Indonesia?

According to iNews.id, first, decreased demand for export products. Later, importing countries from Indonesia, such as the United States, will pressure the demand side. If the demand rate falls, it will affect the trade balance, which is at risk of a deficit and a decline in state income. Second, The rupiah exchange rate weakened. Lastly, Interest rate will increase. 

How to Prepare for a Recession?

When a recession occurs, a business will likely go bankrupt. The causes are negative economic growth, falling asset prices, and incomes. When there is a decrease in revenue, it will also impact the economic life of the workers. The employees are at risk of reduction and Termination of Employment (PHK). For those affected by layoffs, it will be difficult to meet the necessities of life, and this can also lead to a decrease in people’s purchasing power. People are also more selective when shopping during a recession, so the number of requests and company profits will decrease.

This recession will of course also have an impact on the startup industry. Until now, it is reported that investors have warned the founders of startup companies to be more vigilant before this recession. Here are some tips and what a startup should do in the face of a recession in 2023: 

  •  Budget restructuring and diversification of income sources. 
  • Project all scenarios taking into account the impact of a 25%, 50%, or even 100% revenue reduction. 
  • Reduce promotions or ‘burn money’ costs, employee salaries, or even layoffs.
  • Manage cash flow properly
  • Keep innovating for alternative solutions

All of this must be done calmly and with careful planning. Always keep an eye on economic developments and do your best to calculate expenses and income.

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