JAKARTA: Indonesia’s economy recorded its slowest annual growth in over three years during the first quarter of 2025, expanding by 4.87% compared to the same period a year ago, according to official data released on Monday by Statistics Indonesia (BPS).
The figure fell short of analysts’ expectations of 4.91%, as forecast in a Reuters poll, and marked the weakest quarterly growth since Q3 2021. It also reflects a decline from the 5.02% expansion posted in the fourth quarter of 2024.
On a quarter-on-quarter basis, Indonesia’s gross domestic product (GDP) contracted by 0.98% in the January–March period, based on non-seasonally adjusted data.
The weaker-than-expected performance signals mounting challenges for Southeast Asia’s largest economy, which has been struggling to maintain post-pandemic momentum amid slowing global demand, tightening fiscal space, and volatile commodity markets. For the past few years, Indonesia’s GDP growth has largely hovered around the 5% mark—a level now proving difficult to sustain.
Headwinds to Growth
President Prabowo Subianto, who assumed office in 2024, has set an ambitious target of achieving 8% annual growth within his five-year term. However, the latest GDP figures point to significant headwinds, including:
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Global trade uncertainties, such as the ongoing US-led tariff measures and broader geopolitical frictions.
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Weakened household consumption, which, despite Ramadan-related spending, rose just 4.89%—the slowest pace in five quarters.
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Sluggish investment, growing by only 2.12%, the lowest in two years, as domestic and foreign investors adopt a wait-and-see approach amid policy shifts and external risks.
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Declining government expenditure, reflecting fiscal consolidation efforts under tighter budget conditions.
The government’s fiscal leeway has narrowed as it seeks to balance development goals with responsible spending. Jakarta is currently in talks with Washington to address potential tariff impacts on Indonesian exports, particularly as the United States considers broad-based reciprocal trade measures.
Sectoral Performance: Mining Weakens, Agriculture Surges
Sector-wise, the mining industry—a key export driver—shrank by nearly 1% year-on-year. This contraction was attributed to falling global coal prices, reduced demand from international buyers, and output disruptions due to maintenance activities at the Grasberg mine, one of the world’s largest copper and gold operations operated by Freeport McMoRan.
In contrast, agriculture emerged as a bright spot, recording a robust 10.5% annual growth, driven by improved harvests of rice and corn. The sector benefited from favourable weather conditions and government support for food resilience initiatives.
Net exports contributed positively to GDP, primarily due to a sharper decline in imports. However, this gain reflects softening domestic demand rather than export strength.
Outlook and Policy Implications
The first-quarter data presents a significant challenge to President Prabowo’s growth agenda and underscores the need for calibrated policy responses to rejuvenate domestic demand, attract investment, and shield Indonesia from escalating global trade risks.
Bank Indonesia is expected to closely monitor inflation and capital flows before considering any monetary policy adjustments. Meanwhile, the government is likely to accelerate infrastructure projects and refine trade diplomacy to secure favourable terms with key partners, particularly the US and China.
As the global economic environment remains uncertain, the coming quarters will be critical for Indonesia to stabilise growth and deliver on its economic reform commitments.–REUTERS
