Indonesia’s Q1 2025 Growth Projected to Slow: Has the Economy Run Out of Fuel?
Main Takeaways
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JAKARTA, investortrust.id — Indonesia's economy is expected to post slower growth in the first quarter of 2025, raising concerns that key drivers of expansion—household consumption, investment, and government spending—are weakening at the outset of President Prabowo Subianto’s administration.
Coordinating Minister for Economic Affairs Airlangga Hartarto declined to speculate on the upcoming growth figure ahead of its release by the national statistics office, merely smiling when asked about a 4.9% projection. Still, he signaled confidence in the country's overall trajectory, stating, “In mathematics, there is such a thing as rounding.”
Permata Bank Chief Economist Josua Pardede projected annual growth of 4.91% for the first quarter—moderate by recent standards and lower than the 5.03% recorded in the same period last year. The forecast aligns with weakening macroeconomic data, business and consumer surveys, and real-sector indicators, all of which suggest mounting domestic and external pressures.
Household Spending Slows as Middle-Income Strain Grows
Household consumption, historically Indonesia’s growth engine, is expected to expand by just 4.5% year-on-year, down from 4.91% a year earlier. Josua highlighted mixed signals from consumers. While optimism remains, lower income groups are showing signs of financial strain, as reflected in falling income sentiment and reduced purchases of durable goods. “This indicates continued pressure on purchasing power,” he said.
Economists at Bank Mandiri shared similar concerns, citing households’ increasing tendency to save rather than spend, dampening consumption growth further.
Investment Contraction Reveals Foreign Caution
Investment, as measured by Gross Fixed Capital Formation, is projected to grow 3.11% year-on-year. But on a quarterly basis, it may have shrunk by 6.5%, reflecting investor caution amid trade wars and geopolitical uncertainties. “Foreign investors, in particular, are taking a wait-and-see approach,” Josua noted.
Delayed disbursement of government capital expenditures—especially for infrastructure—has further weighed on investment. Analysts at Bank Mandiri estimated government spending grew just 3.3% in Q1, hindered by slow fiscal execution, compared to 4.9% in the previous quarter.
Trade Performance Mixed Despite Export Gains
Export of goods and services is forecast to rise a robust 9.52% year-on-year. However, imports are also expected to grow 5.07%, signaling that domestic demand remains subdued. The relatively balanced trade performance suggests that exports alone may not be enough to offset weaknesses in consumption and investment.
Structural Concerns Surface as Middle Class Shrinks
Teuku Riefky, economist at the Institute for Economic and Social Research at the University of Indonesia (LPEM FEB UI), projected growth between 4.93% and 4.95%—still below the pre-pandemic norm. He flagged a seasonal anomaly in economic activity: sectors that typically boom in Q1, such as transport, logistics, and hospitality, have slowed since 2024.
Mandiri’s spending data supports this observation, showing a shift toward spending on closer, lower-cost travel destinations, especially among middle-income households.
Beyond seasonal patterns, LPEM FEB UI warned of deep-seated structural issues. Although the poverty rate declined to 9% in 2024, the share of the vulnerable population rose to 24.2%, and the middle class has contracted to 2017 levels—about 17.1% of the population.
“This weakening is not merely a structural disruption from the pandemic. The contraction started as early as 2018,” the report noted. Over the past five years, Indonesia’s growth model has succeeded in preventing mass poverty but has failed to lift vulnerable groups into lasting financial stability.
Looking Ahead: A Call to Rethink the Growth Engine
The trajectory of Indonesia’s consumption-driven economy appears to be under strain. Slower growth in Q1 2025—accompanied by cautious investment and stagnant fiscal spending—may signal the need for a more diversified and resilient development strategy going forward.