Indonesia Q2 Growth Beats Expectations, But Sustainability in Question

Indonesia’s economy expanded 5.12% year-on-year in the second quarter of 2025, outperforming forecasts despite global slowdown concerns. The rebound was driven by a surge in household spending during the Eid holidays and solid investment inflows, according to Statistics Indonesia (BPS).

“Second-quarter performance was underpinned by household consumption and investment,” said Moh Edy Mahmud, BPS Deputy for National Accounts and Statistical Analysis, at a press briefing on August 5.

He noted that the long-holiday momentum, stronger tourism, and fiscal support measures helped sustain purchasing power.

Still, international institutions remain cautious. The World Bank, OECD, and IMF have all cut their 2025 full-year growth forecasts for Indonesia to the 4.7%-4.8% range, below last year’s pace. Analysts warn Q2’s performance may represent a seasonal peak rather than the start of a lasting upswing.

Holiday Momentum Keeps the Consumption Engine Running

Household consumption remains the largest contributor to GDP—nothing new—but in a year clouded by concerns over weakening purchasing power, 4.97% year-on-year growth in this component sends a clear signal: the domestic engine is still turning.

That performance reflects the impact of National Religious Holidays (HKBN), the school break, and collective leave, which accelerated money flows across transport, tourism, and food-and-beverage. Domestic tourist trips rose 22.32%, propelled by surging mobility on land and at sea.

“Public mobility increased, as indicated by higher passenger numbers for rail and sea transport. This aligns with HKBN celebrations and the school holidays,” said Statistics Indonesia (BPS) Deputy for National Accounts and Statistical Analysis Moh Edy Mahmud.

At a separate but related event, Coordinating Minister for Economic Affairs Airlangga Hartarto dismissed the notion that “rojali” (rarely buys) and “rohana” (only asks) shoppers in malls reflect weak purchasing power. Data, he argued, point the other way.

“At three large firms in the real sector—both manufacturing and minimarket chains—sales grew 4.99%, 6.85%, and 12.87% in the first half of 2025. The facts differ from the rumors being blown around,” Airlangga said during the Q2-2025 Economic Growth press conference at the Ali Wardhana Building, Coordinating Ministry for Economic Affairs (Aug. 5).

Airlangga speaks with reporters after the press conference at the Coordinating Ministry for Economic Affairs in Jakarta (Aug. 5).

Airlangga noted that Indonesia’s growth pace sits just below China’s 5.2% in the same period.

“Several countries posted figures below ours, such as Malaysia and Singapore. The United States grew only 2%, and South Korea was also relatively low. Among G20 and ASEAN economies, we are among the highest,” he said.

He added that key indicators of consumption and mobility remain solid:

Household consumption accounts for 54% of GDP;
Investment grew 6.99% year-on-year;
Electronic money transactions rose 6.26%;
Marketplace transactions increased 7.5% quarter-on-quarter;
Transport policies helped lift travel by road, sea, and air.

Airlangga’s analysis of Indonesia’s Q2-2025 economic growth.

Robust Consumption, But Uneven

Despite strong consumption growth, some economists caution against declaring a structural recovery.

“Numerous public holidays and religious celebrations boosted consumption, particularly in travel and accommodation. Incentives such as discounted ferry and rail fares also played a role,” CORE Indonesia economist Yusuf Rendy Manilet said in a written statement to SUAR (Aug. 5).

He noted that this pattern of consumption growth is typically driven by upper-middle income groups. “We cannot yet conclude this is a broad-based recovery, especially for lower-middle segments that remain under pressure,” he wrote.

The government has rolled out stimulus measures including social assistance, wage subsidies, transport discounts, and reduced premiums for the Work Accident Insurance scheme. Bank Indonesia kept the policy rate at 5.50% to support rupiah stability.

GFCF: A Production-Side Signal?

If consumption reflects demand conditions, investment—gross fixed capital formation (GFCF)—signals business and government optimism about the economic outlook. GFCF grew 6.17% year-on-year, making it one of the largest contributors to GDP growth after household consumption.

The expansion was reinforced by several indicators. Both domestic and foreign investment inflows strengthened compared with last year, with realized investment rising above 11%.

Capital-goods imports surged nearly 32%, indicating firms are preparing to add capacity. The state also stepped up: central-government capital expenditure increased by more than 30%.

Together, these outlays point to capacity expansion by both the private sector and the state—ranging from infrastructure build-out and machinery purchases to new production facilities.

According to Yusuf, the jump in GFCF is closely tied to robust domestic demand, which is prompting firms to scale up. “In addition, Bank Indonesia’s policy rate cuts in recent months have supported the pace of investment,” he said.

Even so, he warned the trend will be tested in the third quarter, when the holiday impulse fades and seasonal effects ebb.

This trend will be tested in Q3, when the lift from holidays and seasonal effects diminishes.

Industry, Trade, and Services Form the Backbone

On the production side, all sectors posted positive growth this quarter, pointing to a relatively broad-based recovery. The standouts were services and manufacturing.

“Other services” recorded the fastest year-on-year expansion at 11.31%, a category that includes entertainment, recreation, and a range of community services lifted by the extended holiday period.

Meanwhile, manufacturing remained the mainstay with the largest contribution to GDP (18.67%). Food and beverages, basic metals, and pharmaceuticals and traditional medicines were the primary drivers. “Domestic demand for pharmaceutical and herbal products increased, while exports of chemical goods also strengthened,” said BPS Deputy Moh Edy Mahmud.

Despite growth in most components, government consumption contracted—particularly operational spending—making it the only GDP expenditure element to post a decline, even as capital spending continued to rise.

The “Rojali–Rohana” Paradox for Business

For businesses, the second-quarter outcome feels unusual. Ajib Hamdani, Economic Policy Analyst at Apindo, calls it the “Rojali–Rohana paradox”: on one hand, the phenomenon of shoppers who “rarely buy” (rojali) and those who “only ask” (rohana) persists; on the other, BPS data show consumption and investment surging.

“Our forecast back then was in the 4.69%–4.81% range,” Ajib said. “Historically, the second quarter is usually weaker than the first. Moreover, the manufacturing PMI slipped to 46.7 in April, the lowest in four years.”

In reality, investment grew 6.99%, the strongest in four years, propelled by infrastructure projects and a 25-basis-point BI Rate cut in May that injected Rp 375 trillion in liquidity.

Ajib outlined four steps to ensure growth is more than a seasonal spike.

First, bolster purchasing power through job creation.

Second, deploy targeted fiscal and monetary incentives—such as faster tax refunds and affordable credit for labor-intensive sectors.

Third, streamline regulations to accelerate permitting and coordination.

Fourth, attract more foreign investment by improving the ease of doing business, moving from rank 73 toward the global top 40.

“The economic engine still has fuel. The question is how government and business can move in tandem to sustain the momentum,” he said. Apindo highlights the “Indonesia Incorporated” concept—cross-sector collaboration—as key to carrying this momentum through to 2029.