International Institutions' Projections: Indonesia's Economy to Slow Down

Today, Tuesday (5/8/2025), the Central Statistics Agency (BPS) plans to release its economic growth results for the second quarter of 2025. Apart from the BPS release, a number of international institutions have issued economic forecast reports for 2025 and 2026.

The report by the International Monetary Fund (IMF), the World Bank, the Asian Development Bank (ABD), and the Organisation for Economic Co-operation and Development (OECD) has a common thread: Indonesia's economy is expected to slow down in 2025 and 2026.

In the Global Economic Prospects report released by the World Bank in June 2025, Indonesia's economic growth in 2025 is estimated at 4.7%. This figure is lower than the 2024 achievement, which was 5.0%.

This forecast is also 0.4% lower than the World Bank's forecast in January, when Indonesia's growth in 2025 was estimated at 5.1%.

Similarly, the OECD Economic Outlook report released in June 2025, which estimates Indonesia's economic growth this year at 4.7%. Similarly, the World Economic Outlook Update, released by the IMF in July, also states that Indonesia's economic growth in 2025 is estimated at 4.8% - lower than 2024 which amounted to 5.0%.

A different forecast was made by the ADB. In the report Asian Development Outlook: July 2025, it estimates Indonesia's economic growth in 2025 to reach 5.0%.

In a press conference of the Financial System Stability Committee (KSSK), Monday (28/7/2025), Finance Minister Sri Mulyani said that the government had listened to various estimates of Indonesian and global economic growth as presented by various international institutions.

Various recent developments, such as international trade affected by tariff wars to geopolitical tensions in a number of countries, have also revised down the global economic growth forecast.

The World Bank in its June 2025 report forecasts global economic growth of 2.9% (PPP weights) in 2025, down from its previous projection of 3.2%. Meanwhile, the OECD in its June 2025 report also revised downward its 2025 global economic growth forecast; from 3.1% to 2.9%.

Second quarter growth-2025

Nevertheless, Mulyani said, the KSSK is optimistic that Indonesia's economic growth in the second quarter of 2025 will be maintained to serve as a foundation for the economy in 2025 to grow at around 5.0%.

Positive consumption and purchasing power as well as resilient business activity are also supported by the role of the state budget in carrying out the functions of allocation, distribution, and stabilization.

Finance Minister Sri Mulyani Indrawati (second left), Bank Indonesia (BI) Governor Perry Warjiyo (second right), Financial Services Authority (OJK) Board of Commissioners Chairman Mahendra Siregar (left), and Deposit Insurance Corporation (LPS) Board of Commissioners Chairman Purbaya Yudhi Sadewa (right) talk before delivering the results of the periodic meeting of the Financial System Stability Committee (KSSK) at the LPS Office, Jakarta, Monday (28/7/2025).ANTARA FOTO/Fauzan/nz

Economic stimulus, encouragement of strategic program implementation, support for priority sectors, and cushioning for vulnerable sectors continue to be provided by the government.

Bank Indonesia (BI) Governor Perry Warjiyo said, from the monetary side, BI lowered interest rates, eased liquidity, and increased macroprudential liquidity incentives to encourage credit/financing to priority sectors.

"Going forward, the response of the national economic policy mix will continue to be improved to encourage economic growth," Mr. Perry said.

Center of Reform on Economics (CORE) Executive Director Mohammad Faisal said that his party projects Indonesia's economic growth in the second quarter of 2025 to slow down to the range of 4.7%-4.8%, down from 4.87% in the first quarter. Throughout 2025, growth is expected to be at 4.6%-4.8%.

The application of the 19% reciprocal tariff will cut Indonesia's export volume to the world market by approximately 2.65%, while Indonesia's competitiveness lags behind competing countries such as Vietnam.

With less than six months left, to pursue a growth target of at least 5%, the government cannot just dobusiness as usual.

"The government still needs to effectively encourage the recovery of household consumption, investment, and government consumption in the third and fourth quarters," Faisal said.

Researcher at the Institute for Public Economic Research (LPEM), Faculty of Economics and Business, University of Indonesia (FEB UI) Teuku Riefky said that his party estimates economic growth in the second quarter in the range of 4.78%-4.82% or around 4.80%. As for the end of the year, it is estimated to grow 4.75%.

The shrinking capacity for economic growth is triggered by several factors. These include declining purchasing power, a shift in government focus from the previous to the current administration, high dependence on natural commodities, low productivity, and a hostile business climate.

Furthermore, the continued development of trade war tension due to the threat of tariffs by President Trump has the potential to exacerbate the current domestic economic slowdown.

"Considering the current condition of the Indonesian economy and the possibility of worsening economic pressures due to global trade disruptions, the Indonesian economy has the potential to grow below 5% for the rest of the year," said Riefky.

Chairman of the Indonesian Employers Association (Apindo) Shinta W Kamdani said that Indonesia's PMI in July 2025 showed that the business world, especially the manufacturing sector, was still depressed. When manufacturing managers' spending declines, production falls. This is triggered by demand which is also falling.

"To achieve the goal of a Golden Indonesia 2045 with 8% economic growth requires a big leap of structural reform, improving the quality of human resources (HR), real deregulation, and a fair business ecosystem," he said.