Indonesia's Economy Quarter II-2025 Exceeds Market Expectations, Beware Of Global Risks In The Remaining Year

JAKARTA - Head of Bank Permata economist Josua Pardede explained that Indonesia's economic growth experienced significant acceleration in the second quarter of 2025, even exceeding market expectations.

Josua said that although Indonesia's economic recovery was faster than expected, the global risk was still looming in the second half of 2025.

"The reduction in US reciprocal tariffs on Indonesian goods from 32 percent to 19 percent can reduce the negative impact of Trade War volume two, but overall the impact on the national economy remains a negative risk," he told VOI, Tuesday, August 5.

According to him, the recovery of investment is expected to continue along with the certainty of trade policies and the easing of export risk, even though the surge in imports remains a concern.

On the other hand, he added that with the US import rate on capital goods to 0 percent, capital goods from the US are now more accessible and can encourage investment in the private sector.

"As Indonesia's second-largest export destination, the United States has an important role in national trade performance," he said.

According to him, the reduction in tariffs can support export performance, but global trade tensions still have the potential to weaken demand and, a 0 percent import policy could encourage Indonesia's demand for goods from the US.

He added that China's export expansion to the African region and ASEAN continues to grow, which also encourages an increase in Indonesia's import volume from the country.

According to him, fiscal and monetary policies that remain accommodative, including the continuing economic stimulus, will be an important instrument in dealing with global pressures and maintaining domestic purchasing power.

"This strategy is crucial to maintain economic growth above 5 percent in the second semester of 2025," he said.

Overall, he estimates that Indonesia's economic growth throughout 2025 will be in the range of 4.7 percent to 5.1 percent, slightly decreasing compared to 5.03 percent in 2024.

"The need to maintain this growth momentum also opens space for Bank Indonesia to lower the benchmark interest rate (BI-rate) to 50 basis points in the remainder of 2025, especially if expectations for cutting the Fed's benchmark interest rate strengthen," he said.

For information, in the second quarter of 2025, Indonesia's Gross Domestic Product (GDP) grew by 5.12 percent on an annual basis or year-on-year (yoy), well above the projected consensus which estimated growth to be below 5 percent. This achievement also shows improvement compared to growth in the first quarter of 2025 of 4.87 percent.

However, cumulatively, economic growth in the first semester of 2025 was recorded at 4.99 percent (yoy), or slightly below the psychological threshold of 5 percent.

In terms of expenditure, the acceleration of GDP growth in the second quarter of 2025 was supported by increased household consumption and a sharp spike in Gross Fixed Capital Formation (PMTB).

Meanwhile, household consumption recorded growth of 4.97 percent (yoy), slightly higher than 4.95 percent (yoy) in the previous quarter, as people's mobility and spending increased during the national holiday period, including Eid al-Fitr.

Meanwhile, PMTB grew rapidly from 2.12 percent (yoy) to 6.99 percent (yoy), driven by higher government capital expenditures and increased imports of capital goods.

Overall, the contribution of household consumption and PMTB to growth reached 4.70 percentage points (ppt), a significant increase compared to the contribution of 3.29 ppt in the first quarter of 2025. On the other hand, net export contributions decreased from 0.71 ppt to only 0.22 ppt amid rising global trade tensions.

From a sectoral perspective, the manufacturing and construction sectors became the main driver of higher growth in the second quarter of 2025, where the contribution of the manufacturing sector rose from 0.93 ppt to 1.13 ppt, while construction increased from 0.22 ppt to 0.47 ppt.

Furthermore, the trade and information and communication sectors also continue to make a high contribution, but have not experienced significant changes compared to the previous quarter.

As for the annual basis, the manufacturing sector grew stronger than 4.55 percent (yoy) to 5.68 percent (yoy), and the construction sector from 2.18 percent (yoy) to 4.98 percent (yoy).