Indonesia's Economic Momentum Stalls as Q1 Growth Hits Three-Year Low

Economic

Summary:

Indonesia’s GDP rose only 4.87% in Q1 2025, the weakest pace since 2021, driven by faltering domestic demand, job losses, and rising trade risks....

Growth Undershoots Expectations Amid Mounting Economic Headwinds

Indonesia, Southeast Asia’s largest economy, started 2025 with a disappointing GDP growth rate of 4.87% in the first quarter—the slowest quarterly expansion since Q3 2021. This figure fell short of Reuters’ economist forecast of 4.91% and highlights persistent structural fragilities, as the nation struggles to reignite post-pandemic momentum. President Prabowo Subianto’s ambitious target of 8% annual growth for 2025 is now facing significant skepticism, especially as key growth drivers show signs of exhaustion.

The economy had managed to hover around the 5% mark since the COVID-19 crisis, but Q1’s performance signals a broader deceleration. Consumer spending, the backbone of Indonesia’s economy, grew only 4.89%—its slowest pace in five quarters—while public investment rose just 2.12%, the weakest in two years. Simultaneously, government expenditure contracted, and inflation-adjusted wages failed to keep up with living costs.

Weakened Middle Class and Employment Layoffs Limit Recovery

One of the most concerning trends undermining Indonesia’s growth is the erosion of its middle class. In 2024, the share of Indonesians classified as middle class fell to 17.1%, down from 21.4% in 2019. This contraction reflects longer-term aftershocks of the pandemic, elevated interest rates, and widespread layoffs in labor-intensive industries. In just the first two months of 2025, an estimated 40,000 workers—predominantly from the textile and footwear sectors—were laid off, further curbing household spending and social stability.

While exports grew 6.93% year-on-year in Q1, led by manufacturing and processing sectors, this external demand alone is insufficient to counterbalance the stagnation in domestic consumption and investment. Furthermore, Indonesia’s reliance on exports to China, which is experiencing its own slowdown, adds vulnerability to external shocks.

Macroeconomic Uncertainty Grows Amid Rupiah Weakness and Tariff Pressures

Currency depreciation is adding another layer of complexity. The Indonesian rupiah hit a record low in April, reflecting both global risk aversion and domestic fiscal anxieties. The ambitious social policies proposed by President Prabowo—such as a national free meal program for children—have raised investor concerns about fiscal sustainability.

Adding to these concerns, Bank Indonesia recently revised its 2025 GDP forecast to a range of 4.7%–5.5%, citing risks associated with U.S. tariff policies and potential disruptions in global trade flows. These projections suggest a heightened awareness of how external economic policy—especially from major trade partners—can influence domestic trajectories in emerging markets like Indonesia.

Indonesia’s weaker-than-expected Q1 growth underscores both cyclical and systemic challenges. While trade expansion offers some support, the fragility of consumer demand, an eroding middle class, and heightened unemployment point to deeper structural issues. The current environment demands a careful balance between fiscal ambition and macroeconomic discipline. Unless decisive steps are taken to strengthen labor markets, restore investor confidence, and stabilize the currency, Indonesia’s growth aspirations for 2025 may remain out of reach.

Source: Nikkei Asia

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Economic

Forex

Regional Currency Strength Reflects Shifting Trade and Rate Expectations

On May 5, Asian currencies witnessed a sharp rally, buoyed by signs of de-escalation in the U.S.-China trade standoff and growing investor anticipation of regional trade deals. Bloomberg’s Asia currency index rose to its highest level in six months, led by Taiwan’s dollar, which surged more than 5%—marking its strongest level in over two years. The Malaysian ringgit and offshore Chinese yuan also posted multi-month highs, while the Japanese yen, South Korean won, and Singapore dollar gained significant ground.

The momentum was catalyzed by Donald Trump’s statement a day earlier that he would consider reducing tariffs on Chinese goods “at some point,” citing concerns over stalled bilateral trade. The comment followed months of economic retaliation, where the U.S. imposed tariffs as high as 145% and China responded with 125% duties. Now, with both sides signaling openness to negotiation, market sentiment has turned sharply in favor of Asian assets.

Capital Rotation and Short Covering Amplify Currency Moves

The trade optimism triggered a flurry of adjustments in investor positioning. According to Peter Chia of United Overseas Bank, the softer tone in trade rhetoric gave investors confidence to re-enter previously undervalued Asian currencies, especially after months of outflows driven by Trump’s tariff policy. The rapid appreciation also prompted short-sellers to unwind positions, exacerbating the upswing.

SEB’s chief strategist Namik Immelbäck highlighted that many investors were reducing dollar exposure in anticipation of trade agreements, viewing the current moment as a turning point in cross-border financial flows. In Taiwan, the local currency gained added momentum from strong foreign inflows into chipmaker stocks and exporters hedging against further U.S. dollar depreciation.

China’s exporters mirrored this sentiment, with a Bloomberg survey showing a shift from stockpiling dollars to holding yuan amid declining faith in the dollar as a safe haven.

Central Banks Step In to Cool Currency Surge

The rapid gains have triggered concerns about export competitiveness and prompted some central banks to consider intervention. Taiwan’s central bank issued a rare warning that it may act if the currency appreciates too rapidly, while Hong Kong’s Monetary Authority spent a record HK$46.5 billion (approximately US$6 billion) buying U.S. dollars to temper the local currency’s strength.

A stronger local currency helps reduce import costs and attract foreign capital, but it simultaneously risks damaging export sectors by making goods more expensive on the global market. This trade-off is especially critical in export-dependent economies like Taiwan, Malaysia, and South Korea.

Dollar Weakness Rooted in Rate Outlook and Economic Anxiety

Despite robust U.S. job data released at the end of April, broader market confidence in the dollar remains weak. Hedge fund managers last week were reportedly more bearish on the dollar than at any time since September 2024. Goldman Sachs noted that April’s labor report reflects past economic activity rather than forward-looking strength, and emphasized that uncertainties surrounding future rate cuts and trade policy still weigh heavily on the greenback.

Morgan Stanley analysts echoed this view, citing the steepening U.S. yield curve as a warning signal of potential inflation pressures or an impending economic slowdown—both of which diminish the appeal of dollar-denominated assets. In such an environment, Asian currencies like the yuan, Taiwan dollar, and ringgit are increasingly viewed as attractive alternatives, particularly in the eyes of exporters and investors seeking yield and regional growth exposure.

The sudden rally in Asian currencies is more than a technical rebound—it reflects a broader recalibration of investor expectations amid shifting geopolitical and macroeconomic signals. While trade talks and U.S. tariff strategies remain in flux, the market’s response highlights renewed confidence in Asia’s economic outlook and growing skepticism toward the U.S. dollar’s near-term prospects. With central banks now on alert and global capital flows adjusting, Asia’s currency markets are poised for continued volatility and strategic intervention.

Source: Bloomberg

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China–U.S. Trade War

A Strategic Pivot in U.S.-China Trade Dynamics

In a notable shift, former President Donald Trump stated in a televised interview that he intends to reduce tariffs on Chinese imports “at some point,” acknowledging that overly aggressive duties could stifle commercial engagement between the two nations. This statement, aired on NBC’s Meet the Press on Sunday, came just days after escalating tariff retaliation between the U.S. and China appeared to ease in tone.

Trump’s administration had imposed sweeping tariffs—reaching up to 145% on Chinese goods—while Beijing responded with 125% duties on U.S. exports. However, recent comments from both sides suggest a readiness to re-engage in trade talks. Trump argued that while the tariffs were effective in pressuring China’s economy, a deal would eventually require compromise: “You can’t do business with them if you don’t reduce tariffs.”

Short-Term Pain for Long-Term Leverage

Trump’s stance remains firmly tactical. Despite admitting to the impact on China—factory shutdowns and surging unemployment—he rejected the idea of lifting tariffs prematurely to entice Beijing back to the table. Instead, he framed the tariffs as a tool to extract fairer trade terms, repeatedly accusing China of exploiting the U.S. over decades.

China, for its part, has stated it is evaluating U.S. proposals for resuming negotiations but insists that unilateral tariff increases be withdrawn as a precondition. The standoff continues, though the cooling rhetoric suggests that both sides may be inching toward a diplomatic window.

Meanwhile, China’s export-driven economy is showing signs of strain. Official data reveals that in April, the country’s manufacturing sector contracted at its steepest pace in 16 months, and new export orders dropped to their lowest level since the 2022 COVID shock.

Global Trade Talks Beyond China

Trump also used the interview to emphasize his broader trade agenda. He claimed his administration was actively negotiating with “most countries” and that new deals could be announced within the week. Notably, he insisted that any final agreements would be dictated by him personally: “In the end, I will just set a number,” he said, reinforcing a unilateral approach to trade policy.

This approach reflects Trump’s long-standing preference for bilateral, leader-driven negotiations over multilateral frameworks. The tariff threats, while economically disruptive, serve a dual role as both punishment and leverage in reshaping America’s global trade architecture.

The TikTok Factor: Politics Meets Platform Power

In a parallel thread of geopolitical friction, Trump also addressed the fate of TikTok, the Chinese-owned social media platform with 170 million U.S. users. While Congress, under President Biden, passed legislation requiring ByteDance to divest TikTok’s U.S. operations or face a ban, Trump indicated a willingness to grant further extensions.

He noted his personal fondness for the platform, crediting it with helping him connect with younger voters during the 2024 election campaign. “I have a soft spot for TikTok,” Trump said, though he maintained that national security concerns would ultimately dictate the platform’s future.

The admission highlights the political calculus underlying the debate: while TikTok poses perceived security risks, it also wields immense cultural and electoral influence—something Trump appears reluctant to ignore.

Trump’s remarks suggest a subtle but significant recalibration in his trade posture toward China. While maintaining a hardline rhetoric, his openness to reducing tariffs and reviving negotiations indicates a more pragmatic approach in response to both economic realities and political timing. At the same time, his handling of issues like TikTok reveals a nuanced balancing act between security, public sentiment, and personal political capital.

Source: Yahoo Finance

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Economic

Policy Caution Amid Tariff-Driven Uncertainty

The U.S. Federal Reserve enters its May 6–7 policy meeting in a state of strategic pause, with markets nearly certain that interest rates will remain in the 4.25–4.50% range. This cautious stance comes in response to a complex economic backdrop shaped by the reimplementation of broad and inconsistent tariffs by President Donald Trump starting January 2025. These include a baseline 10% duty on imports from most countries and specific 25% tariffs on steel, automobiles, and aluminum, while granting temporary delays to dozens of trade partners until July to renegotiate deals.

While the Fed had been on track to begin reducing rates in mid-2025, analysts now widely expect delays. Institutions like Goldman Sachs and Barclays have pushed their rate-cut forecasts from June to July, citing the need for clearer data on how tariffs may influence inflation and employment dynamics. According to Barclays, extending the pause allows time to better assess labor market health and fiscal risks.

Tariffs Expected to Raise Prices, Suppress Growth

A majority of economists believe that these new tariffs will accelerate consumer prices and temporarily restrain economic expansion. Although such effects are expected to be transitory, they complicate the Fed’s roadmap to achieving its 2% inflation target while maintaining low unemployment.

Loretta Mester, former President of the Cleveland Fed, stressed that the central bank must stay focused on containing inflationary pressures. She warned that a failure to prevent inflation from reaccelerating could undo the gains of the past three years. Mester further argued that policymakers should not assume inflation expectations are anchored without clear data, particularly in a volatile fiscal environment.

Split Views on Inflation Signals and Market Stability

Differing interpretations of inflation signals are emerging among former Fed officials. Jim Bullard, ex-President of the St. Louis Fed and current dean at Purdue University, expressed confidence in market-based inflation expectations and cast doubt on consumer surveys that reflect rising fear. Bullard criticized these sentiment-based indicators for being overly sensitive to political discourse and other non-monetary concerns, arguing that they are prone to overstate inflation risks.

This divergence illustrates the Fed’s challenge: balancing hard data—such as stable unemployment and controlled core inflation—with softer metrics like consumer confidence, which have deteriorated in recent months. The uncertainty surrounding how tariffs might feed into consumer expectations and wage pressures adds another layer of complexity to the Fed’s timing decisions.

Maintaining the Policy Rate as a Strategic Anchor

Despite political pressure and market impatience, the Fed has held its benchmark interest rate steady since December 2024, reflecting its commitment to managing inflation without derailing employment gains. Official inflation figures have so far remained in line with Fed projections prior to the tariff changes, and the labor market has shown resilience.

However, the softening in consumer sentiment suggests broader unease about the economic outlook, potentially undermining spending and investment if unaddressed. As such, the Fed’s current restraint signals not just a response to inflation fears but also a desire to avoid missteps in an increasingly unpredictable policy environment.

The Fed’s decision to hold interest rates steady reflects a deliberate effort to preserve policy flexibility amid tariff-related risks. While hard indicators suggest stability, the inflationary potential of the new trade regime and declining consumer optimism warrant a cautious outlook. The Fed is unlikely to adjust policy aggressively without compelling evidence that tariffs will not reignite inflation. This reinforces its dual mandate strategy—targeting long-term price stability while safeguarding employment—in a volatile global and domestic economic landscape.

Source: Reuters

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Economic

A Shift in Global Aid Leadership

In 2024, Japan relinquished its position among the top three official development assistance (ODA) donors, falling to fourth place among OECD Development Assistance Committee (DAC) members. The change comes after years of consistent performance, having overtaken the UK in 2021. However, according to preliminary OECD data released in April 2025, the UK reclaimed third place with $18.0 billion in aid, while Japan trailed slightly behind at $16.8 billion—a 10.3% year-over-year decline.

The United States remained the largest ODA donor with $63.3 billion, despite a 4.4% decrease from 2023. Germany held second place with $32.4 billion, down 17.2%, while France followed Japan in fifth with $15.4 billion, virtually unchanged from the previous year.

Currency Volatility and Aid Cycle Normalization

Japan’s Ministry of Foreign Affairs attributed the aid decline mainly to the depreciation of the yen, which reduced the dollar-equivalent value of disbursed funds. A senior official also highlighted that this drop followed unusually high figures in 2022 and 2023, when many delayed development projects resumed after the COVID-19 pandemic. Thus, the 2024 reduction is partly the result of a cyclical normalization rather than a wholesale shift in policy direction.

Despite the numerical setback, Japan continues to regard ODA as a vital diplomatic tool, particularly in advancing its Free and Open Indo-Pacific strategy. This positioning is especially important given the rising geopolitical influence of China in the region, where development aid serves not only humanitarian but strategic interests.

Global Aid Trends Reflect Broader Retrenchment

Japan’s aid contraction is part of a broader retreat in global development financing. According to the OECD, total ODA from DAC countries dropped by 7.1% in 2024 to $212.1 billion—the first decline after five consecutive years of growth. The reduction stems largely from lower contributions to international institutions and a significant decrease in aid to Ukraine.

ODA directed to Ukraine fell by 16.7%, totaling $15.5 billion, and now accounts for just 7.4% of total assistance. This pullback suggests a shift in global donor focus, likely influenced by domestic budgetary pressures and changing geopolitical calculations.

Japan’s fall from the top three does not signal a diminished commitment to global development but rather reflects macroeconomic and cyclical variables. The weakening yen reduced the effective value of aid, while the high baseline set in prior years amplified the year-on-year drop. With final figures expected later in 2025, Japan’s strategic use of ODA—particularly in Asia—remains a cornerstone of its international engagement, even if its headline figures have temporarily slipped.

Source: Mainichi

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Patricia Franklin

Cryptocurrency

What to Know:

● Congress is advancing the Project 2025 crypto bill.

● Aims to reduce influence and clarify regulations.

● Positive growth expected with increased institutional confidence.

U.S. Congress Advances Project 2025 Crypto Bill

U.S. Congress is pushing the Project 2025 crypto bill to curb large firm influence and clarify regulations, involving key financial regulators.

The bill seeks to enhance regulatory clarity in the crypto sector, promoting growth and investor confidence.

Congress Tackles Regulatory Gaps in Crypto Sector

The U.S. Congress is advancing the bipartisan Project 2025 crypto bill. It aims to address regulatory gaps and reduce major firms' influence, involving the SEC and FCA oversight.

Key players include U.S. Congress, the SEC, FCA, and the White House, which is active through the national digital asset framework. Changes role of central crypto firms.

Impact on Stablecoins, DeFi, and Staking

Legislation affects stablecoins, DeFi, and staking, inducing market volatility but expected to boost institutional confidence and participant growth. Immediate market adjustments anticipated.

The bill could lead to financial shifts with clearer regulatory landscapes. Growth in U.S. market participation and investment is expected, fostering new industry standards.

2022 Executive Order Sparks Current Legislative Moves

Past events like the 2022 Executive Order on Digital Assets led to temporary market disruptions. Legislative clarity historically stabilizes long-term industry dynamics.

Expected outcomes include increased institutional entry and improved security. Clear frameworks historically optimize industry alignment, promoting sustainable growth trends.

"The United States Government currently holds a significant amount of BTC, but has not implemented a policy to maximize BTC's strategic position..."

Source: CryptoSlate

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China–U.S. Trade War

Economic

Selective Manufacturing Growth Amid Tariff Revival

The return of Trump-era tariffs has sparked a cautious wave of optimism across parts of the U.S. manufacturing sector. Some small and mid-sized American producers are experiencing an influx of orders as buyers turn away from foreign goods subject to higher import taxes. This includes manufacturers like Jergens Inc., whose factories in Chicago and Cleveland are now operating 24/7 to fulfill a spike in demand driven by two primary sources: customers avoiding import tariffs and increased defense sector procurement over the past 18 months.

In Ohio, Grand River Rubber & Plastics has also benefited, securing returning clients who had previously shifted to Chinese suppliers. The company reports that three oil refining clients have sought to redirect their orders from China, with two deals already confirmed. If all deals proceed, Grand River could see an annual revenue boost of $5 million—around 10% of its current turnover—prompting plans for workforce expansion and new long-term contracts to guard against potential tariff reversals.

Rising Costs Undermine Tariff Gains

Despite these gains, many manufacturers are facing sharp increases in input costs, especially those reliant on imported raw materials. Grand River, for instance, continues to source safety glasses, earplugs, machinery tools, and small quantities of rubber from countries now facing 10% to 145% tariffs. While some of these costs can be absorbed, others must be passed onto customers through higher product prices, reducing the competitiveness that the tariffs were meant to enhance.

SafeSource Direct in Louisiana, a PPE manufacturer that had scaled down post-pandemic, has now restarted two production lines—bringing its total to eight—to capitalize on rising prices of Chinese gloves. With a capacity of nearly 118 million gloves per month, SafeSource has been able to narrow the cost gap with Asian competitors. However, it still pays a 10% tariff on rubber chemicals imported from Brazil and Italy, revealing the persistent cost burden for even domestic manufacturers.

Consumer Goods Giants Make Strategic Adjustments

Multinational firms like Whirlpool are also recalibrating in response to the renewed tariff environment. With 80% of its U.S. products assembled domestically, Whirlpool contends that Asian competitors benefited unfairly when earlier tariffs expired in 2023, gaining a cost advantage of approximately $150 per washing machine. The reintroduction of tariffs on fully assembled imported appliances is expected to reduce this disparity. Yet, Whirlpool still anticipates an overall cost increase of 2.4% for 2025—equivalent to $400 million—which it plans to offset through cost-cutting and price adjustments.

Despite isolated gains, broader industry sentiment remains cautious. The Federal Reserve Bank of Dallas reported in April that many firms are lowering their business outlooks due to tariff-related concerns. This includes companies like Husco International near Milwaukee, which manufactures automotive and agricultural parts. CEO Austin Ramirez notes that while the company has reduced its reliance on Chinese imports by 50% over the past decade, around 20% of its materials by value still originate from China. These imports are essential and cannot be easily replaced, forcing the company to absorb tariffs and pass the costs onto customers.

The mixed outcomes from Trump’s tariff policy reflect an uneven industrial response. For some firms, the tariffs have enabled temporary market recapture and a modest revival of domestic manufacturing. However, for many others, global input reliance, rising costs, and a lack of structural investment—such as new factory openings—underscore the fragile nature of this recovery. Whether these shifts represent the early signs of long-term reshoring or merely short-lived market adjustments remains to be seen.