Amidst global concerns of an economic slowdown, Indonesia recorded higher-than-expected growth. The economy in Q2-2025 grew 5.12% on an annualized basis, supported by a surge in public consumption during the Lebaran period as well as investment growth.

"Economic performance in the second quarter was supported by public consumption and investment," said Deputy for Balance Sheet and Statistical Analysis at the Central Statistics Agency (BPS), Moh Edy Mahmud, in a press conference on Tuesday (5/8).

He added that the strengthening of consumption was supported by the momentum of long holidays, tourism activities, as well as fiscal policies that maintain purchasing power.

However, signals from international institutions still contain a cautious tone. The World Bank, OECD, and IMF all cut Indonesia's growth projections for the full year 2025.

The World Bank and OECD, for example, expect growth to be in the range of 4.7% to 4.8%, lower than last year. This means that the impressive Q2 results could be a momentary peak in what is still a challenging year.

Holiday momentum, consumption engine does not die

The fact that household consumption is still the largest contributor to Gross Domestic Product (GDP) is nothing new. But in the context of this year, amidst the narrative of weakening purchasing power, the growth of 4.97% (yoy) in this sector still gives an important signal: the domestic engine is still turning.

This performance is inseparable from the moments of the National Religious Holidays (HKBN), school holidays, and joint leave which accelerate the turnover of money in the transportation, tourism, and food and beverage sectors. The number of domestic tourist trips grew 22.32%, driven by a surge in land and sea mobility.

"Increased community mobility is indicated by an increase in the number of rail and sea transportation passengers. This is in line with the HKBN celebration and school holidays," Edy explained.

In another event, Coordinating Minister for Economic Affairs Airlangga Hartarto dismissed the notion that the phenomenon of groups rarely buying (rojali) and groups only asking questions (rohana) in shopping centers is a reflection of weak purchasing power. According to him, the data in the field is just the opposite.

"In three large real sector companies, both factories and minimarkets, sales grew by 4.99%, 6.85%, and 12.87% respectively in the first semester of 2025. The facts are different from the blown-up issues," said Airlangga in his presentation at the Press Conference on Economic Growth in the Second Quarter of 2025, Ali Wardhana Building, Coordinating Ministry for Economic Affairs (5/8).

Airlangga said that Indonesia's economic growth rate was just below China, which recorded an increase of 5.2% in the same period.

"Some countries recorded figures below ours, such as Malaysia and Singapore. While the United States only grew by 2%, and South Korea is also relatively low. So, among the G20 and ASEAN countries, we are among the highest," he said.

He added that consumption and mobility indicators were still solid:

• Household consumption accounts for 54% of GDP;
• Investment grew by 6.99% (yoy);
• Electronic money transactions rose 6.26%;
• Marketplace transactions grew 7.5% (QtoQ);
• Transportation policies are driving an increase in land, sea, and air travel.

Strong, but uneven consumption

Despite the high consumption growth, some economists caution against hastily labeling this as a structural recovery.

"The number of holidays and religious celebrations boosted consumption, especially in the travel and accommodation sector. Incentives such as discounts on ship and train fares also play a role," Yusuf Rendy Manilet, economist at CORE Indonesia, told SUAR in a written statement (5/8).

According to him, this type of consumption growth is usually driven by the upper middle class. "We cannot conclude that this is an even recovery, especially for the lower middle class segment which is still under pressure," he wrote.

The government itself poured out stimulus such as social assistance, wage subsidies, transportation discounts, and discounts on Work Accident Insurance contributions. Bank Indonesia maintained its BI Rate at 5.50 percent to maintain rupiah stability.

PMTB: a signal of production optimism?

If consumption reflects demand conditions, then investment or gross fixed capital formation (GFCF) reflects the optimism of businesses and the government towards the future of the economy. PMTB grew by 6.17% (YoY), becoming one of the largest contributors to GDP growth after household consumption.

This economic growth was also supported by a number of important indicators. Incoming investment flows, both domestic and foreign, showed a stronger stretch than last year. The realization grew above 11%.

This condition is in line with the surge in imports of capital goods which reached nearly 32%, an indication that businesses are preparing to increase production capacity. The government did not remain silent. Capital expenditure from the State Budget also increased significantly, rising by more than 30%.

This boost from the state spending side helped to sustain gross fixed capital formation, which grew strongly for the third consecutive quarter.

This means that both the private and state sectors are expanding capacity, through infrastructure development, machinery purchases, and the development of production facilities.

According to Yusuf, the surge in PMTB is closely related to domestic demand, which encourages businesses to add capacity. "In addition, the reduction in the benchmark interest rate by BI in recent months has also boosted the pace of investment," he said.

However, he cautioned that this trend will be tested in the third quarter, when there is no longer a boost from holidays and the seasonal effect declines.

This trend will be tested in the third quarter, when there is no longer a boost from the holidays and seasonal effects decline.

Industry, trade, and services are the backbone

In terms of production, all sectors grew positively this quarter indicating a relatively even recovery. However, the most striking were the services and manufacturing sectors.

Other services was the highest-growing business sector at 11.31% (yoy). This sector includes entertainment, recreation, and various community services that were boosted by the long holiday period.

Meanwhile, the manufacturing industry remained the main pillar with the largest contribution (18.67%). The food and beverage, basic metal, and pharmaceutical and traditional medicine industries were the main drivers of growth. "Domestic demand for pharmaceutical and herbal products rose, while exports of chemical goods also strengthened," Edy explained.

Although the majority of components grew, government consumption contracted, especially operational spending. This was the only element in GDP that grew negatively, even though capital expenditure continued to increase.

The "Rojali-Rohana" paradox in the business world

For businesses, the achievements of the second quarter are unique. Ajib Hamdani, Apindo's Economic Policy Analyst, calls it the "Rojali-Rohana paradox": on the one hand, the phenomenon of groups rarely buying and groups only asking questions is still felt; on the other hand, BPS data shows consumption and investment soaring. 

"Our prediction at that time was in the range of 4.69%-4.81%," Ajib said. "Historically, the second quarter is usually lower than the first quarter. Moreover, the manufacturing PMI (purchasing management index) had contracted to 46.7 in April, the lowest in four years."

In fact, investment grew 6.99%, the highest in four years, spurred by infrastructure projects, and the 25 basis points BI Rate easing in May - pumping in IDR 375 trillion of liquidity.

Ajib outlined four steps so that this growth does not just become a seasonal spike. First, strengthen purchasing power through the creation of new jobs.

Second, targeted fiscal and monetary incentives, such as accelerated tax refunds or low-cost credit for labor-intensive sectors.

Third, deregulation to speed up licenses and coordination.

Fourth, attract foreign investment by improving the ease of doing business, from 73rd to 40th in the world.

"The economic engine still has gasoline. It's just a matter of how the government and the business world work together so that growth is sustainable," he said. Apindo mentions the concept of Indonesia Incorporated, cross-sector collaboration, as the key for this momentum to last until 2029.