MACROECONOMIC ANALYSIS SERIES: Indonesia Economic Outlook Q3-2025 - 'Below 5' is The New Normal

Jahen F. Rezki (), Teuku Riefky (), Faradina Alifia Maizar (), Difa Fitriani (), Mervin Goklas Hamonangan (), Hardi Salim () and Alif Ihsan A Fahta ()
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Jahen F. Rezki: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)
Teuku Riefky: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)
Faradina Alifia Maizar: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)
Difa Fitriani: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)
Mervin Goklas Hamonangan: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)
Hardi Salim: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)
Alif Ihsan A Fahta: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)

No 202503, LPEM FEBUI Quarterly Economic Outlook from LPEM, Faculty of Economics and Business, University of Indonesia

Abstract: Entering 2025, Indonesia’s economy only grew by 4.87% (y.o.y) in the first quarter of this year, fell from 5.02% (y.o.y) in the previous quarter. The latest quarterly economic growth rate of Indonesia reached its lowest level in the last 9.5 years (excluding COVID-19 period) and might show the bleak realization of shrinking potential growth. Indonesia typically sees its highest quarterly GDP growth within a year during the quarter that includes Ramadan and Eid al-Fitr. However, Indonesia’s economy could not reach the 5% growth rate in Q1-2025, suggesting that it could grow even lower for the rest of the year. Dwindling economic growth capacity stems from various factors. Those factors include the declining of purchasing power, government’s priority shift from previous administration to the current administration, overreliance on raw commodities, low productivity, and unfavorable business climate. Furthermore, the evolving tension of trade disruption triggered by Trump’s tariff might exacerbate the current domestic economic slowdown. Temporary relief through subsidies and incentives cannot resolve the underlying structural problems that hampers the overall productivity, such as unfavorable investment climate and business certainty. A conducive business environment is key factor for firms to grow, enhance productivity, and create quality formal jobs. Such jobs not only provide stable incomes but also enable better access to welfare and improvements in living standards. Addressing the structural issue of corruption, rent-seeking activity, and any activities that can contribute to “high-cost economy” and creates business uncertainty is of utmost importance as no form of subsidies or incentives can substitute for these fundamental reforms.

Keywords: gdp; —; economic; quarterly; —; economic; outlook; —; inflation; —; macroeconomics (search for similar items in EconPapers)
Date: 2025-03, Revised 2025-03
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