Economist: Enhancing competitiveness is crucial to prevent potential layoffs

Jakarta (ANTARA) - Executive Director of the Center of Reform on Economics (CORE) Indonesia, Mohammad Faisal, believes that enhancing the competitiveness of domestic industries is crucial as one measure to prevent potential layoffs amid the dynamics of energy and raw material commodity prices due to the Iran-US-Israel war.

“That potential future impact could lead to consumer-level inflation and, at some point, might result in layoffs for industries that lose out in pricing and competing for market share,” Faisal said when contacted in Jakarta on Friday.

He stated that the war in the Middle East directly affects surges in energy commodity prices, industrial raw materials, and global logistics costs following the Strait of Hormuz, which is the world’s most vital energy corridor.

Faisal explained that when raw material and energy prices rise, it will also increase producer-level inflation. If the conflict persists long enough and industrial margins are sufficiently squeezed, processed product prices will automatically be transmitted through price increases.

“So, that means product price increases will rise, with producer inflation transmitted to consumer-level inflation,” he said.

However, he noted that such steps are not always easy to implement because raising product prices will undoubtedly make competition fiercer.

“Because from the consumer’s perspective, not all consumers can follow the product price increases. Thus, competition arises among industries to offer more competitive products in terms of price,” Faisal stated.

“So, whoever wins will survive, including surviving by maintaining their consumer market share. But for industries that lose the competition, this could impact declining profits, declining sales, which in turn could lead to reduced production and potential layoffs,” he added.

Meanwhile, Executive Director of the Center of Economic and Law Studies (Celios), Bhima Yudhistira Adhinegara, said the projection for layoffs this year will surge by 13.6 per cent to 100,000 people.

“There is transmission of raw material inflation passed on to retail prices. Fertiliser, plastic, and energy price pressures will meet with super El Niño. The impact is cost-push creating a spiral effect on various types of businesses, both industrial and services. Like it or not, price adjustments must be made, but consumers are not ready,” Bhima said.