Indonesia GDP Q2 2025 grew 5.12% year-on-year, surpassing initial projections of 4.7–4.8%, driven primarily by a robust informal sector. The data, released by Statistics Indonesia (BPS), highlights stronger-than-expected household consumption, stable food prices, and improved agricultural output. While the formal sector faces softness, experts emphasize that boosting corporate investment and expanding exports will be crucial to sustain long-term growth.
Indonesia GDP Q2 2025 Surpasses Expectations
According to BPS, Indonesia’s GDP at current prices reached IDR 5,947 trillion and IDR 3,396.3 trillion at constant prices in Q2 2025. The quarter-on-quarter growth stood at 4.04%, reflecting stronger activity compared to Q1. Household consumption, which analysts had expected to weaken, rose from 4.89% yoy in Q1 to 4.97% yoy in Q2.
This growth created an apparent anomaly, as many anticipated that declining purchasing power amid layoffs would suppress domestic demand. HSBC’s Chief Indonesia and India Economist, Pranjul Bhandari, noted, “When we saw the June GDP growth data a few days ago, we weren’t too surprised. Growth reached 5.1%, higher than 4.9% in March.” This early surge positions Indonesia for a potentially stronger economic trajectory in the coming quarters.
Informal Sector Recovery Fuels Growth
The informal sector has emerged as the main driver of this GDP growth. It encompasses individuals in small businesses, unregistered companies, and agricultural activities. The sector accounts for 60% of employment and 55% of household consumption, surpassing the formal sector’s 40% employment and 45% consumption contribution.
Bhandari explained, “What we’re seeing in 2025 is that although the formal sector is not doing better than before, the informal sector has started to perform much better. Why is the informal sector doing better in 2025? In my view, because inflation has dropped significantly, which has boosted purchasing power—especially among mass-market consumers who are sensitive to prices.”
Strong agricultural output, aided by favorable rainfall and La Niña conditions, has also strengthened the sector. The Agriculture, Forestry, and Fisheries sector grew 1.65% yoy and 13.53% qoq, contributing 13.83% to GDP. Government interventions, such as targeted subsidies and transport discounts, further supported middle- and lower-income households, sustaining informal sector spending.
Weakness in Formal Sector Indicators
While the informal sector surged, formal sector indicators remain subdued. Car sales and household appliance purchases dropped, reflecting slower domestic demand. In contrast, spending on food, beverages, clothing, energy products, and other essentials remained resilient. This divergence underscores a temporary imbalance: informal sector strength offsets formal sector softness. Bhandari emphasized that despite visible gains, relying solely on consumption recovery is insufficient for sustained economic resilience.
Calls to Boost Corporate Investment and Exports
HSBC experts highlight the importance of boosting corporate investment to create high-wage jobs and sustain growth. “And in my view, what we really need is for corporate investment to increase—because only when corporate investment rises can the economy’s capacity to grow and create high-wage jobs expand,” said Bhandari.
Export growth offers additional potential. Indonesia’s exports to the US and EU include medium-tech goods such as textiles, furniture, and footwear, though volumes remain small. Global supply chain shifts, accelerated by US tariff policies, could provide new opportunities. Bhandari noted, “Multinational companies are looking for new destinations where they can produce and sell. And I think once the tariff storm eases, Indonesia could actually benefit.” Encouraging investment in production and diversifying exports could strengthen GDP and create more stable growth.
Sustaining Growth Beyond 5.12%
Indonesia’s 5.12% Q2 growth is encouraging, but experts stress that it alone cannot close the negative output gap. Sustaining this momentum requires increased corporate investment and expanded exports of medium-tech goods. With strategic action, the country could leverage shifting global trade dynamics and informal sector resilience to maintain stronger economic performance in the coming quarters.
Source: investor.id
Image: Canva
