Indonesia’s economy slowed in the first quarter of 2025, prompting the government to implement new strategies to stabilize performance and build long-term resilience. The country’s gross domestic product (GDP) only grew by 4.87% year-on-year (YoY), a drop from the previous quarter’s 5.02%. In response, officials introduced a series of short- and medium-term policies to address both internal and external pressures while aiming to push growth back to the 5% target.
Q1 Performance Signals Economic Challenges
Indonesia’s economic deceleration in early 2025 stemmed from several key factors. The high base effect from 2024 made it harder to sustain momentum, while domestic investment showed early signs of slowing after the general election. External challenges also mounted, particularly due to aggressive U.S. trade policies, which triggered global market volatility.
“This uncertainty has triggered volatility in financial markets and led the IMF to revise its global growth projection downward from 3.3% to 2.8%,” said Bank Mandiri Chief Economist Andry Asmoro, as reported by jawapos.com.
Government’s Short-Term Measures to Support Growth
To protect purchasing power and stimulate demand, the government has implemented short-term fiscal and structural policies, including:
- Expansion of the Free Nutritious Meal (MBG) program to strengthen food security and boost the local food economy
- Targeted social assistance for vulnerable groups to maintain household consumption
- Discounts on public transportation and electricity subsidies for specific households
- Acceleration of government spending to reinforce fiscal stimulus
- Deregulation measures to simplify business permits and enhance ease of doing business
Transforming Indonesia Economy Through Long-Term Reforms
Beyond immediate fixes, Indonesia has rolled out a medium-term strategy focused on structural transformation to drive sustainable growth. The reforms aim to enhance industrial competitiveness, digital readiness, and green innovation. These include:
- Development of mineral processing industries, such as nickel, bauxite, and copper
- Strengthening value chains in strategic commodities like palm oil
- Expansion of digital infrastructure across the country
- Acceleration of digital adoption among MSMEs and the public sector
- Support for renewable energy projects, including the Muara Laboh geothermal plant, which secured USD 499 million in funding from AZEC
Read More: Indonesia Clean Energy Transition Could Boost Economy by 1.5%
Indonesia Economy Forecast: Bank Mandiri Projects 4.93% Growth
Bank Mandiri projects Indonesia economy growth to reach 4.93% by the end of 2025. Household consumption remains a key driver, supported by holiday momentum and stable inflation. However, consumers are increasingly cautious, diverting more income toward savings.
Annual inflation stood at 1.95% as of April 2025, reflecting controlled price levels. Electricity tariff adjustments, following the end of a subsidy program, accounted for most of the limited increase. Meanwhile, the rupiah faced pressure due to geopolitical tensions and a strong U.S. dollar. “These fluctuations require a well-measured and coordinated stabilization policy response,” said Asmoro.
Sectoral performance also played a role in shaping the outlook:
- Agriculture saw strong gains from irrigation and fertilizer distribution programs.
- Services such as tourism, transport, and entertainment benefitted from post-holiday activity and experience-based consumption.
- Commodities remained supportive of export earnings despite moderate price corrections.
Read More: US Tariffs on Indonesia Won’t Impact Economy, Says ADB
Coordinated Efforts Critical for Recovery
The road to recovery requires collaboration between government agencies, monetary authorities, and the private sector. Effective coordination between fiscal stimulus and accommodative monetary policy will help preserve purchasing power and attract investment. Asmoro emphasized, “We project Indonesia’s economic growth will be around 4.93% throughout 2025.”
With both immediate interventions and long-term structural reforms in place, the government remains optimistic about strengthening the Indonesia economy and achieving a more stable and inclusive recovery.
Source: jawapos.com, cnbcindonesia.com
Image: Pexels
