Indonesia's 5.11% Growth in 2025 Masks Rising Economic Risks

Indonesia's economy expanded by 5.11% in 2025, posting a modest acceleration over the 5.03% growth recorded in 2024. The performance, driven by a rebound in domestic demand, fell short of the government's 5.2% target but landed within Bank Indonesia's forecast range of 4.7% to 5.5%.

While the full-year figure points to resilience, it also highlights significant challenges facing Southeast Asia's largest economy.

Exports and Holiday Spending Fuel Growth

A strong export sector was a primary engine of economic activity. According to Statistics Indonesia, exports grew 6.15%, powered by increased shipments of key commodities like palm oil, iron, and steel. Notably, exports of nickel and its derivatives to China, along with electronics, textiles, and footwear to the U.S., saw double-digit increases despite "reciprocal" tariffs from the Trump administration.

Domestically, the economy saw a late-year surge, with GDP expanding 5.39% year-on-year in the fourth quarter, up from 5.04% in the third. This boost was largely attributed to seasonal consumer activity, as household consumption and transportation spending rose during the Christmas and New Year holidays. However, this occurred even as severe floods and landslides in northern Sumatra caused substantial economic losses.

Major Headwinds Challenge Prabowo's 8% Goal

Despite the positive headline numbers, several underlying weaknesses pose a threat to President Prabowo Subianto's ambitious goal of achieving 8% annual growth by 2029.

Mass layoffs across industries from textiles to tech startups in recent years have weakened consumer purchasing power and slowed private consumption. This internal pressure is compounded by external challenges, including ongoing trade wars and geopolitical tensions.

Domestic market stability has also been shaken. Key concerns include:

• The Indonesian rupiah fell to a new historic low against the U.S. dollar last month.

• A warning from global index provider MSCI triggered a stock market sell-off.

• The market rout led to the resignations of the chiefs of both the stock exchange and the Financial Services Authority.

Stimulus Spending Pushes Deficit to Legal Limit

To support the economy, the government deployed a 110.7 trillion rupiah ($6.6 billion) stimulus package in 2025. The package included utility bill discounts, value-added tax incentives, and social assistance for low-income families. This spending was separate from the 71 trillion rupiah allocated to major programs like President Prabowo's free meals initiative for children.

Finance Minister Purbaya Yudhi Sadewa acknowledged that the state budget was critical to sustaining growth. However, this fiscal support pushed the budget deficit to 2.92% of GDP, bringing it dangerously close to the legal ceiling of 3%.

Defending the strategy, Sadewa told reporters last month, "I can make the deficit zero, but the economy would be in disarray." For the coming year, the government is targeting a growth rate of 5.4%.