Indonesia posts weakest economic growth in over three years

May 05, 2025 (MLN): Indonesia's economy grew at its weakest pace in more than three years in the first quarter, with headwinds expected in the rest of the year stemming from global trade turmoil and declining household spending.

Southeast Asia's largest economy grew 4.87% in the first quarter from a year earlier, its slowest rate since the third quarter of 2021 and down from 5.02% in the previous quarter.

Growth was roughly in line with analysts' forecasts in a Reuters poll at 4.91%.

President Prabowo Subianto, who took office last year, has pledged to lift GDP growth to 8% during his five-year term, as Reuters reported.

However, he is facing challenges from slowing global growth amid a trade war, as well as weakening domestic demand and a tighter budget position.

U.S.-bound exports could also be hit by hefty tariffs in coming months, which Jakarta is looking to avert in talks with Washington.

"Various challenges are already in sight, such as the negative impact of trade war tensions between the U.S. and its trading partner countries, including Indonesia," said Myrdal Gunarto, Maybank Indonesia economist.

Global market uncertainties may also limit the central bank's room to ease monetary policy, he said.

Bank Indonesia has cut interest rates twice since September and has said it has room to cut further, though its priority was maintaining market stability.

Hosianna Situmorang, Bank Danamon's economist, said further growth deceleration to 4.79% is expected in the current quarter on slowing household spending and the impact of trade tensions.

However, she kept Danamon's 4.8% full-year forecast, expecting improvements in the second half of 2025.

"We see indications of improvement coming from easing trade tensions, since investors are predicting China would negotiate (with the U.S.). The government should also begin to accelerate spending," she said.

Chief economic minister Airlangga Hartarto told reporters Indonesia's growth remained higher than peers in the Group of 20 major economies, and that government spending would provide growth momentum going forward.

On a non-seasonally adjusted, quarter-on-quarter basis, GDP contracted 0.98%, Statistics Indonesia data showed.

In the first three months of 2025, household spending, which makes up over half of the country's GDP, grew 4.89% annually, down just slightly from the previous three months, but marking the slowest pace in five quarters.

That was despite higher spending during Ramadan, which fell in March this year.

Spending on eating out, transportation and communication remained strong, but other spending, such as footwear purchases, was sluggish, Statistics Indonesia said.

While the GDP data suggested stable purchasing power, other indicators suggested spending by urban middle class households was weakening, said Barra Kukuh Mamia, Bank Central Asia's economist.

First-quarter investment growth slipped to 2.12%, its lowest in two years. Government spending contracted, but there was an increase in the net export contribution to GDP due to slowing imports.

The mining sector shrank about 1%, affected by a drop in coal prices.

The agriculture sector provided one bright spot, with 10.5% growth, boosted by stronger rice and corn harvests.

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