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Indonesia's economy posted its strongest growth in three years during the final quarter, fueled by government stimulus that successfully boosted domestic demand. The performance provides a potential lift to market sentiment following recent pressure on the rupiah and local stocks.

Gross domestic product (GDP) expanded 5.39% in the three months ending in December compared to the same period a year earlier, according to the national statistics agency. This figure surpassed the median forecast of 5.1% and represents the fastest growth since the third quarter of 2022, when the economy grew by 5.73%.

For the full year, GDP growth accelerated to 5.11% from 5.03% in 2024.

Key Drivers of the Economic Surge

Government Stimulus Fuels Consumption

A key factor behind the stronger-than-expected growth was a significant injection of state funds. The government disbursed an additional US$1.8 billion in social assistance during the fourth quarter, directly supporting a rebound in household consumption.

Investment and Manufacturing Gain Momentum

The economy also benefited from faster expansion in investment. This was supported by a notable uptick in manufacturing activity between October and December.

Data from the statistics agency showed that nearly all industries expanded in the fourth quarter, with manufacturing, trade, and agriculture providing the largest contributions to growth. The only exception was the mining sector, which did not post an expansion.

Market Reaction and Fiscal Outlook

Following the data release, stocks registered a modest gain of 0.1%, while the rupiah continued a 0.3% decline amid a strengthening U.S. dollar. The yield on the benchmark 10-year government bond remained unchanged.

The strong growth figures align with the government's efforts to lift Indonesia's economic trajectory from its two-decade average of 5% toward President Prabowo Subianto's ambitious 8% target. However, this aggressive growth strategy has sparked concerns that the fiscal deficit could breach the country's mandated cap, potentially undermining its reputation for fiscal discipline.

A Regional Economic Snapshot

Indonesia's robust performance shows it is gaining ground on its regional peers. While the Philippines reported a growth slump to just 3% in the fourth quarter, both Malaysia and Singapore recorded a 5.7% expansion. Vietnam's economy grew at an impressive pace of 8.46% during the same period.

Policy and Projections for the Year Ahead

Finance Minister Purbaya Yudhi Sadewa recently affirmed that Indonesia's growth momentum remains strong, defending the nation's economic fundamentals amid stock market volatility linked to an MSCI warning about local stock investability. He projected that the economy could expand by 6% this year, driven by a combination of fiscal, monetary, and private-sector initiatives.

Looking ahead, the government plans to accelerate spending in early 2026 to further support consumer purchasing power, partly through additional fiscal aid. Bank Indonesia is also widely expected to ease its monetary policy this year. To foster long-term growth, the government aims to attract more investment through its new sovereign wealth fund, Danantara.

Trump Sets Clear Condition for Fed Chair Nominee

President Donald Trump has stated he would have refused to nominate Kevin Warsh to lead the Federal Reserve if Warsh had expressed any desire to raise interest rates.

"If he came in and said, 'I want to raise it,' he would not have gotten the job, no," Trump said during an NBC News interview on Wednesday.

The president added there was "not much" doubt that the Fed would ultimately lower rates. He argued that rates are "way high" even though the U.S. is "a rich country again." When asked if Warsh understood the president's preference for lower rates, Trump responded, "I think he does, but I think he wants to anyway."

A Challenge to Federal Reserve Independence

Trump's comments are poised to become a central issue during any potential confirmation process for Warsh, bringing the Federal Reserve's political independence under intense scrutiny.

While the president said he believed "in theory" that the central bank is an independent body, he also asserted that his own economic predictions should be considered because he is a "smart guy."

These remarks follow a months-long pressure campaign from Trump aimed at outgoing Fed Chair Jerome Powell, urging him to cut interest rates. Although administration officials have denied any intention to undermine the Fed's autonomy, Powell has described a related probe into the bank as a thinly veiled attack on its ability to set monetary policy independently.

Confirmation Battle Complicated by Senate Blockade

The nomination process faces additional political obstacles. Republican Senator Thom Tillis, a member of the Banking Committee, has pledged to block any of Trump’s nominees to the central bank.

Tillis’s blockade will remain until the Justice Department concludes an investigation into the Federal Reserve's renovation project. Trump, however, dismissed this threat on Wednesday, saying "a lot of people say a lot of things." He also repeated his own criticism of the construction project, stating, "This guy has spent so much money."

Who is Kevin Warsh?

Kevin Warsh is a former Fed governor who previously developed a reputation as an inflation hawk. More recently, however, he has voiced support for lower interest rates, a policy stance that appears to align with the president’s demands.

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Source: CNBC

Chicago soybean futures surged Thursday, driven by comments from U.S. President Donald Trump indicating that China is ramping up its purchases of U.S. agricultural products.

The most-active soybean contract on the Chicago Board of Trade (CBOT) gained 0.8% to trade at $11.01-1/2 a bushel as of 0412 GMT. In contrast, other major grains softened, with CBOT wheat falling 0.2% to $5.25-1/2 a bushel and corn dropping 0.2% to $4.28-1/2 a bushel.

Trump's Comments Trigger Market Optimism

The rally in soybeans gained momentum after the commodity hit a two-month high on Wednesday. The move followed a post on President Trump's Truth Social platform stating that China is "lifting the soybean count to 20 million tons for the current season." He added, "They have committed to 25 million tons for next season!"

This development is significant as China had largely withdrawn from the U.S. soybean market during the prolonged trade war between the two nations. Traders are now closely monitoring for any further signs of renewed buying interest.

"Typically Chinese purchases of U.S. soybeans taper off from January," noted Sean Hickey, an analyst at Bendigo Bank Agribusiness. "Regardless, the lift to 20 million metric tons of U.S. soybean purchases will add some much-needed boost to the soy complex."

By late January, China had already purchased approximately 12 million tons of U.S. soybeans, fulfilling a commitment announced after a trade truce in late October began to thaw relations.

Record Brazilian Supply Limits Price Gains

Despite the bullish news, gains in the soybean market were capped by the prospect of ample global supply, primarily from South America.

Brazil, the world's top soybean producer and exporter, is in the process of a rapid harvest of what is projected to be a record-breaking crop. "An all-time record Brazillian crop, which is being quickly harvested, will soon begin to capture Chinese demand," Hickey explained.

This supply pressure is expected to continue. On Monday, consultancy firm StoneX raised its forecast for Brazil's 2025/26 soybean production by 2.3% from its January projection, now anticipating a crop of 181.6 million tons.

Looking ahead, China is expected to rely heavily on Brazilian soybeans through the first half of 2026. Record production levels and competitive pricing are set to drive shipments from Brazil, even as U.S. supplies become available. This pattern was evident last year when China's soybean imports from May to October hit record highs, with buyers favoring South American cargoes to avoid the elevated tariffs on U.S. products.

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Source: CNBC

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%.