The Indonesian Economy In 2025 Is Threatened With Stagnacy, Observers Urge Pro-People's Policies

JAKARTA - Economic observer from Andalas University (Unand) Syafruddin Karimi said, Indonesia started 2025 with heavy economic pressure, both from domestic and global factors.

Economic growth in the first quarter only reached 4.87 percent, down from the same period in the previous year of 5.11 percent.

"This decline reflects a combination of weak global demand, turmoil of international trade policy, and strict domestic fiscal control," he explained in his statement, Monday, May 5.

Syafruddin explained internally that the fiscal efficiency implemented by the government after the pandemic had an impact on cutting the General Allocation Fund (DAU) and the Special Allocation Fund (DAK), which caused regional infrastructure projects to be hampered, reduced public spending, and weakened purchasing power of rural communities.

In addition, at the same time, household consumption and private investment are not strong enough to optimally support economic growth, as well as the effect of this fiscal control measure weakening the national economic foundation at the beginning of the year.

From an external perspective, he conveyed that the United States protectionist policy under the leadership of President Donald Trump has again become an obstacle for Indonesia's exports, especially superior products such as textiles, rubber, and metals.

Meanwhile, the economic slowdown in China due to trade wars and strengthening domestic substitution products also suppressed Indonesia's exports, thus failing to become the expected source of growth.

In this situation, Syafruddin emphasized that household consumption is the only main support for economic growth.

Based on data from Gross Domestic Product (GDP) in the first quarter of 2025, household consumption grew by 4.89 percent (yoy) and contributed 2.61 points to a total growth of 4.87 percent, so this proves that more than half of national economic growth is supported by domestic consumption.

Meanwhile, the performance of other components seems to be weak where government consumption grows negative, investment only grows 2.12 percent, and exports of goods and services slow down.

On a quarterly basis, government consumption fell by 39.89 percent, fixed capital formation was gross at 7.40 percent, and exports were 6.11 percent.

"This confirms that households are the only anchor that saves the national economy from a deeper slowdown," he said.

However, Syafruddin said that it does not appear that there is a concrete economic policy that is able to strengthen or protect people's purchasing power.

He conveyed that the government has not provided sufficient fiscal intervention to strengthen household consumption, even though this component has proven to be the main engine of growth.

"Indonesia needs economic policies that explicitly support household consumption. Productive social assistance, fiscal incentives for the lower middle class, and stabilizing the prices of basic necessities must be a priority. If households lose their purchasing power, then the national economy will really lose its main support," he explained.

Seeing the trend of economic growth, Syafruddin projects that quarterly economic growth in 2025 will also show a tendency to stagnate, where in the first quarter it was recorded at 4.87 percent, in the second quarter it was estimated that 4.9 percent to 5.0 percent, in the third quarter it reached a peak of 5.1 percent to 5.2 percent because domestic consumption, and in the fourth quarter it was stable at 5.0 percent.

With this trend, he estimates that the 2025 annual growth is estimated to be only 4.95 percent to 5.05 percent, lower than the 2024 average of 5.05 percent.

"This reflects that external pressure and domestic weakness have held back the pace of Indonesia's economy throughout the year," he stressed.

According to him, this year will be a test for the resilience of Indonesia's economic structure, and its dependence on household consumption proves the importance of the domestic market as the main bulwark against global turmoil.

"The government must design a policy strategy that is in favor of strengthening purchasing power and reviving other growth machines, both investment, export, and government consumption. Only then can Indonesia come out of the shadow of stagnation and return to a sustainable growth path," he added.