Indonesia’s economy showed signs of deceleration in the first quarter of 2025, with growth easing to 4.87%, down from 5.11% in the same period last year. The slowdown is largely attributed to weakened domestic consumption and reduced government spending, the two key pillars of the nation’s economic engine.
External pressures, particularly retaliatory tariffs from the United States, have further compounded the challenge.
Despite the dip, economic observers say the numbers remain within a manageable range. Yukki Nugrahawan Hanafi, Chairman of the ALFI Institute, remains cautiously optimistic.
“Although there are pressures and clear signs of deceleration, growth in the first quarter is still within the government’s target range of 4.7% to 5.5% for 2025,” he noted.
Investment, however, continues to offer a silver lining. The Indonesia Investment Coordinating Board (BKPM) reported a realization of IDR 465.2 trillion in the first quarter of 2025, up from IDR 401.5 trillion during the same period last year.
The government’s MBG (free nutritious meals) program has also made headway, reaching 82.9 million beneficiaries and generating 54,000 new jobs as of April 2025.
Yet, concerns linger about the broader economic fundamentals. Yukki pointed to declining purchasing power among the middle and lower-income segments, scaled-back infrastructure projects due to tighter budgets, and increasingly limited fiscal space. These factors, he warned, could put further strain on growth if not addressed urgently.
“Domestic consumption makes up roughly 55% of our GDP, followed by government spending at around 15%,” Yukki explained.
“We’re urging the government to strengthen consumer demand through targeted incentives—especially for the middle class, by stimulating MSMEs, creating manufacturing jobs, and accelerating productive government expenditure,” he said further.
Fresh research from CORE Indonesia backs up these concerns. A study conducted in late April 2025 highlighted several indicators pointing to softening domestic consumption, including a 1% drop in the Real Sales Index, rare pre-Ramadan deflation, and lower-than-expected mobility during the holiday season.
“Indonesia’s large and consumption-driven middle class is a major economic asset—especially when global uncertainty is high,” Yukki emphasized. “What we need now is a strong catalyst from the government to restore purchasing power and keep our domestic engine running.”
As Indonesia navigates a complex web of domestic and international pressures, experts agree on one thing: unlocking consumer confidence and ramping up government-led stimulus may be the key to reinvigorating growth in the months ahead.