May 6, 2025
JAKARTA – Economic growth in Prabowo Subianto’s first-full quarter as president has touched the slowest pace since the coronavirus pandemic as the Ramadan boost failed to significantly jack up consumer spending and investors fretted about global uncertainty while government spending contracted.
Statistics Indonesia (BPS) revealed in a press conference on Monday that the country’s gross domestic product (GDP) from January through March was up 4.87 percent year-on-year (yoy), marking a slowdown from GDP growth of 5.02 percent yoy in the preceding quarter.
The Prabowo administration has a full-year GDP growth target of 5.2 percent for 2025, and the President hopes to achieve a rate of 8 percent by the end of his term.
Commenting on the BPS report, Coordinating Economic Minister Airlangga Hartarto told reporters at his Jakarta office on Monday to wait for the GDP data for the second quarter, when state budget spending “has started to roll, so the growth momentum can be maintained.”
Budget spending was constrained in the first quarter as the government conducted a massive reallocation to redirect funds to the President’s flagship free nutritious meal program.
The data presented by BPS head Amalia Adininggar Widyasanti on Monday showed that government spending contracted 1.38 percent yoy in the first quarter, a far cry from its 19.9 percent yoy rise in the same quarter of 2024.
She explained that the drop was attributable to last year’s spending for the general election, which took place in February.
Bank Permata chief economist Josua Pardede wrote in an analysis on Monday that the combination of “budget normalization and effective budget tightening” had dragged down overall government spending.
Gross fixed capital formation (GFCF), which reflects investment in fixed assets like machinery, buildings or infrastructure, rose only 2.12 percent yoy, far lower than last year’s annual average of 4.6 percent.
The slowdown in GFCF, which includes most corporate and government capital expenditure, weighed on overall GDP growth, since the component accounts for over a quarter of the country’s economic activity.
Amalia said the slowdown was because “investors are probably still [taking a] wait-and-see [stance] amid global economic developments”, meaning businesses would remain reluctant to expand until market conditions become clearer.
The biggest source of global uncertainty is the United States-China trade war, triggered by Washington’s tariff hikes and met with retaliatory measures from Beijing, the world’s second-largest economy, as well as Indonesia’s largest trading partner.
Josua said the “significant GFCF slowdown” had been brought about by the postponement of government infrastructure projects alongside high interest rates and global uncertainty prompting investors to become “more cautious”.
Consumer spending, which consistently makes up more than half of Indonesia’s GDP, was up only 4.89 percent yoy despite the seasonal boost from the Islamic festive season of Ramadan and Idul Fitri, when households generally spend more.
However, Amalia said the relatively weak consumption growth was partly caused by the fact that Idul Fitri fell at the very end of March, meaning spending conducted in the final days of the holiday period fell into the second quarter.
Consumption was responsible for 54.5 percent of Indonesia’s GDP in the last quarter, down from 54.9 percent in the same period last year. This diminishment in household consumption “reflects prolonged waning of consumers’ spending power”, said Josua.
SSI Research economist Fithra Faisal Hastiadi said in an analysis on Monday that the frail consumption growth “showed [consumer] fatigue”, and its pace “may not recover” in the second quarter.
He said achieving the government’s 5.2 percent target would require “a much stronger recovery” in the second half, in which “tailwinds” in the form of expedited government capital spending on infrastructure and downstream industrialization would take place.
“A clearer direction on tariff negotiations with the US may help improve investor sentiment,” Fithra added.
Syafruddin Karimi, an economist at Andalas University, wrote in an analysis on Monday that consumer spending was “the backbone” of Indonesia’s economy and that “it was concerning that there are no concrete steps from the government to intervene or fix” the other GDP components.
“State spending, which ought to be an economic cushion amid global storms, was instead tightly controlled; it’s as if the state distanced itself from the public when the market was sluggish. This shows how weak the fiscal response was in the midst of an economic slowdown and the lack of stimulus for the real sector,” said Syafruddin.
As reported earlier, the International Monetary Fund (IMF) has downgraded Indonesia’s economic growth projection for this year to 4.7 percent in the latest edition of its World Economic Outlook (WEO), from 5.1 percent prediction set in the previous publication.
The latest WEO forecasts the country’s GDP growth to be 4.7 percent next year.
The National Development Planning Agency (Bappenas), meanwhile, has a goal of 5.8 to 6.3 percent GDP growth for next year, as revealed in a press conference on Monday to present the government’s working plan (RKP).
