In the second half of 2025, the government is stepping up efforts to breathe life into a slowing economy, rolling out new incentives and stimulus programs aimed at sustaining growth near the government’s 5 percent target.

Officials argue that the mix of tax breaks, labor-intensive projects, and monetary easing will strengthen household consumption and bolster job creation.

But analysts and business leaders caution that without deeper reforms, Southeast Asia’s largest economy risks settling into a sluggish growth path.

“Yes, first is about what can drive growth higher in the second semester," Coordinating Minister for the Economy Airlangga Hartarto said after a meeting at the Coordinating Ministry for the Economy on Friday (July 26, 2025).

"Certainly, several programs such as labor-intensive programs in transportation, labor-intensive programs in public works. These will be pushed for better implementation,” Airlangga said.

In addition, the government is also discussing discounts ahead of the Christmas and New Year period. “We hope these can be announced earlier,” he added.

Property Tax Incentives

One of the key measures is maintaining the Government-Borne Value Added Tax (PPN DTP) facility for home purchases at 100% in the second semester. Initially, the stimulus was set to fall to 50%.

“We will discuss the technical details later,” Airlangga said.

This step is expected to encourage middle-class purchasing power and support the property sector, one of the engines of economic growth. Data from the Public Works and Housing Ministry (PUPR) showed construction and real estate sectors still posted positive growth of 4.5% (yoy) in Q1–2025.

Labor-Intensive Programs and Employment

Beyond property, labor-intensive programs in infrastructure—such as road, bridge, and public transport construction—are also a priority. The government has also instructed industrial projects such as MBG to prioritize hiring new workers from low-income groups (decile 1 and 2).

“We want the impact to be felt directly by the community, especially in reducing extreme poverty,” Airlangga said.

The government targets extreme poverty to drop to 0%–6.5% by year-end. BPS data in March 2025 recorded the national poverty rate at 8.47%, a slight decline of 0.1 percentage point compared to September 2024.

Incentives and Social Assistance

Airlangga also confirmed that social assistance programs such as Wage Subsidy Assistance (BSU) will continue. Not all sectors will receive incentives, however. For example, electricity will not receive additional subsidies, unlike transport—airlines, toll roads, and especially railways—that will continue to be supported.

“When will this be announced? In September,” Airlangga said.

Anticipating Bad Loans

Still, challenges remain. One concern is the high non-performing loan (NPL) ratio of MSME construction-sector KUR loans, which has reached 10%. Airlangga assured that corrective steps are ongoing, while continuing to channel credit to MSMEs as planned.

“MSME KUR will remain on track,” he stressed.

The government hopes that these programs and incentives will sustain recovery momentum and strengthen growth through year-end.

Monetary Stimulus

On the monetary side, Bank Indonesia (BI) has also moved to stimulate the economy by cutting its benchmark interest rate by 25 basis points to 5.25% at the July 2025 Board of Governors’ Meeting.

“In addition to maintaining stability, BI’s policy is directed at supporting growth through lower interest rates, liquidity easing, and enhanced macroprudential incentives for banks to increase credit and financing to priority sectors,” said BI Governor Perry Warjiyo.

“Going forward, economic growth in the second half of 2025 is projected to improve, with full-year 2025 expected in the range of 4.6%–5.4%,” Perry added.

Read also: BI Cuts Interest Rates, Signals Push for Economic Growth

Businesses Need Incentives

Ajib Hamdani, Economic Policy Analyst at the Indonesian Employers Association (Apindo), voiced concern over Q1–2025 growth, which fell 2.4% compared to the same period last year. Traditionally, Q1 benefits from the Lebaran consumption cycle, which boosts money circulation. Without further interventions, he warned, growth in 2025 could fall even lower.

“Q1 growth is worrying, at only around 4.87%, compared to 5.11% in Q1–2024,” he said in a written statement.

Apindo identified at least four causes for the slowdown:

Weakening household consumption amid over 70,000 layoffs in Q1, with World Bank data showing 60.3% of Indonesians in poverty in 2024.

Sluggish government spending. Q1 tax revenues reached only 14.7% of the target, below the ideal 20%, triggering spending efficiency programs that hurt economic sentiment.

External pressure, particularly from U.S. tariff policies under Trump that reduced American demand for Indonesian goods from April 2025, hurting the trade balance.

Investment remaining concentrated in capital-intensive sectors, reducing job creation. In 2014, Rp1 trillion of investment created 4,000 jobs; now, it generates only around 1,000.

Given these conditions, Apindo urged short-term stimulus in H2–2025, including direct cash transfers (BLT) to boost consumption.

“The hope is that Q2–2025 growth will be higher, or at least stable compared to Q1,” Ajib said.

Apindo also called for optimized state spending as the main stimulus, guided by “spending better”—targeted expenditures that directly create jobs and strengthen food and energy security.

“The government must focus on pro-job creation, food, and energy resilience. This aligns with President Prabowo Subianto’s Asta Cita program of generating quality jobs,” Ajib concluded.

He said measures already announced—labor-intensive programs, property stimulus, and transport incentives—align with the 5% growth target for 2025, forming a foundation for 2026, when growth is projected at 5.2%–5.8% under the government’s 2026 Macro-Economic Framework and Fiscal Policy Directions (KEM-PPKF).

Read also: A Glimmer of Hope in the Third Quarter

Anticipating a Slowdown

Despite the government’s optimistic 5% growth target, research by the Center of Reform on Economics (CORE), released Friday (July 25, 2025), warned of looming risks.

In its CORE Mid-Year Economic Review 2025, the think tank projected Q2–2025 growth at only 4.7%–4.8%, slightly below Q1’s 4.87%. Full-year growth is expected at 4.6%–4.8%, far below the government’s ambition.

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Executive Director Mohammad Faisal highlighted weakening household consumption, the main economic driver.

The Real Sales Index grew just 1.2%, half the pace of the previous quarter. The Consumer Confidence Index contracted -5.1%, while household savings fell from 16.6% to 14.6%. Layoffs surged 27.7%, forcing many families to dip into savings for essentials.

Indonesia also faces external risks. Reciprocal U.S. tariffs of 19% were hailed by the government as an “exceptional struggle,” but they carry consequences: Indonesia must honor commercial commitments worth Rp368 trillion, including purchasing 50 Boeing aircraft. Meanwhile, exports are forecast to fall 2.65%, weakening competitiveness against countries like Vietnam.

“Recovery momentum now depends on the government’s courage to take breakthrough steps. If it continues business as usual, a deeper economic downturn in the next six months is far from impossible,” Faisal warned.

CORE proposed several short-term policies: expanding household stimulus (cash transfers, electricity discounts), offering tax incentives for companies that avoid layoffs, accelerating strategic state spending, strengthening downstream industries, and supporting local products.

“Protect domestic industries from cheap illegal imports through stricter verification and subsidies for strategic sectors such as food and beverages, petrochemicals, basic metals, and electronics,” Faisal urged.