Indonesian Economic Outlook for 2025-26

Admin Ugems
2 من الدقائق قراءة - Wed Jun 11 01:00:00 GMT 2025

By Rajiv Biswas, CEO, Asia-Pacific Economics OverviewIndonesian GDP growth moderated to a pace of 4.87% year-on-year in Q1 2025. However, measured on a quarter-on-quarter basis, GDP growth showed a contraction of 0.98%, reflecting a sharp downturn in government final consumption expenditure. In response, the Indonesian government announced a USD 1.5 billion fiscal stimulus package on 5th June, to support domestic demand.  Bank Indonesia has also provided monetary stimulus with a 25 basis point rate cut in May. Key headwinds for the near-term outlook include the negative effects of potential new US reciprocal tariff measures on Indonesian exports as well as the impact of softer international thermal coal prices on coal export values. However, an important new positive on the trade front is the new Indonesia-EU Comprehensive Economic Partnership Agreement, with bilateral negotiations having been concluded in June.Domestic Demand Supported by Stimulus MeasuresIndonesian economic growth is heavily driven by private consumption expenditure, which accounted for around 55% of Indonesian GDP in 2024. In Q1 2025, private consumption spending grew by 4.89% year-on-year, around the same pace as the overall GDP growth rate. This was just a touch below the pace of expansion in private consumption for calendar 2024, which was 4.94%.  The June USD 1.5 billion fiscal stimulus package will provide some support domestic demand during 2025, albeit modest. Recent Bank Indonesia (BI) monetary policy easing steps between September 2024 and May 2025 have lowered the BI policy rate by a total of 75 basis points, which will provide some monetary policy support for private consumption and investment expenditure in 2025-26. With headline CPI inflation having eased to just 1.6% year-on-year in May, which is at the lower end of the BI inflation target range, this should allow further room for monetary policy easing during the second half of 2025. Foreign direct investment (FDI) inflows into Indonesia have remained strong, reaching USD 55 billion in 2024, up 21% year-on-year. FDI accounted for 52.5% of total investment in 2024, highlighting the importance for overall investment expenditure of new foreign investments into the mining, downstream processing and services sectors.However, the expected boom in FDI inflows into Indonesia’s battery manufacturing sector has faced significant setbacks, with the cancellation of South Korean firm LG’s planned USD 7.7 billion investment in electric vehicle battery manufacturing due to weaker than expected global demand for electric vehicles. China’s CATL has also announced that it will reduce planned investment in new EV battery manufacturing in Indonesia.Export Sector Faces HeadwindsIndonesia has had a very favorable external account performance in recent years, with successive monthly trade surpluses for a period of five years since May 2020. However, the April 2025 trade surplus narrowed sharply, to just USD 160 million, compared to a surplus of USD 4.3 billion in March 2025. The strong trade surpluses and rising FDI inflows in recent years have helped to deliver balance of payments surpluses of USD 6.3 billion in 2023 and USD 7.2 billion in 2024. As a result, Indonesia’s official foreign exchange reserves rose to a record high of USD 157 billion in March 2025.However, the near-term outlook for the export sector is more challenging, notably due to the new US reciprocal tariff for Indonesia set at 32% pending bilateral trade negotiations. US goods imports from Indonesia were estimated at USD 28.1 billion in 2024, while US goods exports to Indonesia were estimated at USD 10.2 billion. This resulted in a US bilateral trade deficit with Indonesia of USD 17.9 billion in 2024, which is one of the key focal points for the bilateral trade negotiations currently underway.  The broader impact of US tariff measures against other countries worldwide, including many of Indonesia’s largest trade partners in the Asia-Pacific region, also will have negative impact effects on demand for Indonesian exports in key Asian markets. A key focus will be the US-China trade negotiations, as if there are significant US reciprocal tariffs imposed on China, this will hit manufacturing supply chains across many Asian economies.However, some positive new trade liberalization initiatives are also underway. Indonesia has just finalized negotiations on a free trade agreement with the European Union. This new free trade agreement will significantly improve market access for Indonesian exports to the EU, with a large proportion of Indonesian exports expected to receive zero tariff rates. The EU is a key trade partner with Indonesia, with bilateral trade of USD 30.1 billion in 2024. Indonesia had a USD 4.5 billion trade surplus with the EU in 2024.



Source https://djakarta-miningclub.com

تعليقات الصفحة