• Indonesia’s economy grew as expected by 5.03% in 2024, driven by domestic consumption. However, the annual economic expansion of 5% remained well below President Prabowo Subianto’s target of 8% within his term until 2029.1. Private consumption in 2024 grew by 4.94%, driven by consumption stimulus measures that were implemented in the first half of the year. However, domestic purchasing power declined in the second half of 2024, as evidenced by a continued decline in retail sales. In addition, inflation remained low at 0.76% in January 2025.
2. Exports of goods and services accelerated by 6.51% YoY, primarily driven by the number of foreign tourists in 2024, which increased to 13.9 million (+19% YoY) but remained below pre-COVID-19 levels, while export restrictions and a slowdown in trading partners’ economies suppressed export growth.
3. Public consumption and private investment improved in 2024 by 6.61%YoY and 4.61%YoY, respectively, as a result of the government’s economic stimulus measures in the first quarter, while investment was supported by a policy rate cut in September 2024.
• KResearch views that Indonesia’s economy in 2025 is likely to grow by 5.1%, within the forecast range of 4.7-5.5% by the Bank Indonesia (BI). The economy will be boosted by domestic consumption through the government’s economic stimulus measures and the latest reduction in policy rate. The Bank Indonesia (BI) cut its policy rate by 0.25 percentage points to 5.75% on January 15, 2025, and is likely to cut it further due to low inflation and a stable rupiah outlook. Nonetheless, attention must be paid to the risk factors facing Indonesia’s economy: - Indonesia’s exports in 2025 are likely to slow down due to a new round of trade war, with the US likely to impose additional import tariffs on Indonesian goods. In addition, exports to China-Indonesia’s key export market, accounting for 24% of total exports-are also likely to slow down. Meanwhile, the government measure aimed at promoting the use of palm oil for domestic biodiesel production, which has raised the mandatory biodiesel blend to 40% (B40) from 35% (B35) and has already come into force, will lead to a decline in palm oil exports and further drag down Indonesia’s shipments.
- Challenges arising from the government’s massive fiscal stimulus package aimed at achieving Indonesia's 8% growth target will further increase risks to fiscal stability in 2025. The Indonesian government has recently unveiled a series of economic stimulus packages totaling Rp827 trillion, accounting for 4% of GDP, consisting of 1) energy subsidies for consumers; 2) business subsidies to mitigate the impact of the VAT increase to 12%; and 3) subsidies for low-income households. Moreover, the Indonesian government is expected to introduce additional plans to bolster its economy, which will require a large amount of funds and may widen the fiscal deficit from 2.2% of GDP in 2024.
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