Signs of Recovery Ahead as Indonesia’s Investment Growth Slows in Early 2025
Main Takeaway
|
JAKARTA, investortrust.id — Investment activity in Indonesia has moderated in the first quarter of 2025, but analysts and regulators remain optimistic about a rebound in the coming months, citing improved business sentiment and solid fundamentals in the banking sector.
According to Indonesia’s Central Statistics Agency, or BPS, gross fixed capital formation—widely seen as a proxy for investment—grew by just 2.12% year-on-year in the first quarter. The agency attributed the downturn to investor hesitation driven by a volatile international economic climate.
Trioksa Siahaan, Head of Research at the Indonesian Banking Development Institute, or LPPI, explained that banks have taken a similar wait-and-see approach to credit disbursement, citing concerns about weakening consumer demand and the need to maintain healthy liquidity buffers.
“Yes, I believe banks are closely watching the global environment before pursuing credit expansion. They are also paying attention to the decline in purchasing power and ensuring they preserve liquidity, especially in the face of a global economic downturn that is weighing on investment,” Trioksa told investortrust.id on Tuesday, May 6, 2025.
He warned that this cautious stance could slow down the country’s overall economic growth. For now, Trioksa said, banks should focus on bolstering liquidity and maintaining credit quality before resuming aggressive lending.
Despite the subdued outlook, Trioksa projected a recovery in credit demand by the second quarter of 2025, as domestic economic activity begins to regain momentum. “We hope this momentum can be sustained. However, if global headwinds emerge—such as geopolitical conflicts or the impact of new tariffs—investment and credit disbursement trends may once again come under pressure,” he said.
At a press briefing on Monday, May 5, 2025, BPS Chief Amalia Adininggar Widyasanti echoed the sentiment, noting that early-year investment activity tends to be sluggish even in normal years. She pointed to a similar pattern in 2024: Q1 investment grew by 3.78% year-on-year before rising to 4.42% in Q2, 5.16% in Q3, and 5.03% in Q4.
In light of the persistent global uncertainties, many businesses in Indonesia have reportedly revised down their growth projections. Still, the Financial Services Authority, known locally as OJK, remains confident in the resilience of the banking sector.
“We have maintained our projection of 9% to 11% growth in bank lending by the end of 2025,” said Mahendra Siregar, Chairman of OJK’s Board of Commissioners, during the agency’s National Conference in Jakarta on Monday, April 28, 2025.
Mahendra added that the target remains realistic based on current banking business plans submitted to OJK, noting that ongoing discussions with financial institutions indicate no significant changes in their credit growth strategies.