Indonesia's Economy Is Under Pressure, Apindo Highlights Four Factors For Causes

JAKARTA - The Organization for Economic Co-operation and Development (OECD) cut Indonesia's economic growth projection from 4.9 percent to only 4.7 percent for 2025.

Economic Policy Analyst of the Indonesian Employers' Association (Apindo) Ajib Hamdani said that economic growth in the first quarter of 2025 was quite worrying, which was only in the range of 4.87 percent when compared to economic growth in the first quarter of 2024 of 5.11 percent.

Furthermore, the aggregate economic growth in 2024 is 5.03 percent.

He said, in the first quarter, economic growth is usually quite escalative because there is a routine annual cycle in the form of Eid holidays which is enough to boost the circulation of money and public consumption.

"In conditions where the plenary session is economic and there is no government intervention, the potential for Indonesia's economic growth in 2025 can be below 4.87 percent," he explained in his statement, Tuesday, June 10.

Ajib said that the second quarter trend also shows indicators that lead to economic weakening.

In April and May, the Manufacturing Purchasing Managers' Index (PMI) experienced contractions with ranges of 46.7 and 47.4.

According to him, this contraction between Manufacturing PMIs in general provides an overview and is an indicator of reducing people's purchasing power.

Ajib sees that the weakening condition of macro-conomic growth indicators is due to at least 4 things, namely the first, because the ability of public consumption, which is indeed riel, has decreased.

"This is supported by wave data on Termination of Employment (PHK) since the beginning of the year which has touched more than 70 thousand in the first quarter of 2025," he explained.

Meanwhile, based on poverty data in Indonesia, it has also increased, even with standards from the World Bank, in 2024 in Indonesia which is categorized as poor, reaching 60.3 percent and this condition is in line with the decrease in people's purchasing power.

Furthermore, the second factor, is the government spending pattern in early 2025 where tax revenue in the first quarter of 2025 only reached 14.7 percent of the revenue target, which ideally could reach 20 percent.

Then, he added that the government carried out a spending efficiency program, thus providing negative sentiment to economic growth in the early period of the year.

Next is the third factor, namely economic constraction due to external factors, especially because this tariff policy and conditions have made demand for goods, especially from America, decline and balance of financial transactions since April 2025.

"The complexity of Trump's tariff effect policy gave negative sentiment during the second quarter," he said.

Furthermore, the fourth factor is that the economic slowdown occurs because the investment side is more concentrated in the capital-intensive sector, so that the multiplier effect on employment is less than optimal.

"Comparing data from the past 10 years, in 2014 every 1 trillion can absorb up to 4,000 workers. Meanwhile, in 2024, every 1 trillion investment absorbs a range of 1,000 workers. The investment target in 2025 of IDR 1,905.6 trillion is expected to absorb more than 3.59 million new workers," he said.

With these conditions, said Ajib, the government must make a short-term orientation in June and then in the second half of 2025.

According to him, the economic stimulus program, which focuses on the Direct Cash Assistance (BLT) pattern, will be effective in increasing public consumption and boosting purchasing power.

"Hopefully, economic growth in the second quarter of 2025 can be higher, or at least last compared to the first quarter," he said.

He added, to maintain economic growth in the second half, it is hoped that the government can make government spending the main stimulus.

According to him, the principle of government spending must prioritize spending better, namely prudent in carrying out government spending patterns that encourage economic growth to the fullest.

"The government must focus on pro-job creation, food security and energy. This is in line with the Asta Cita Presiden Parbowo Subianto program, which is to increase quality employment opportunities," he said.

Ajib assessed that the government-driven program is appropriate to encourage economic growth in 2025, at least 5 percent and this will be a positive foundation ahead of entering 2026.

"The government already has a more escalative economic growth projection in the range of 5.2 percent-5.8 percent in accordance with the Macro Economic Framework and the Principles of Fiscal Policy (KEM-PPKF) in 2026," he concluded.