Indonesia posted gross domestic product growth of 4.87% year on year in the first quarter of 2025. That’s the slowest quarterly growth rate the country has experienced in three and a half years. Yet economists and policymakers alike fear for the nation’s economic prospects, hand-wringing over anemic growth. Fueling their fears are external pressures such as U.S. tariffs and domestic pressures such as budget deficits and high unemployment.
This is in spite of the fact that the most recent report from Statistics Indonesia indicates that the GDP growth rate plummeted to 4.87%. This growth is significant, as that is lower than last quarter’s growth of 5.02%, and less than the median forecast of 4.91% by economists polled by Reuters. This slowdown is the weakest rate of expansion since the third quarter of 2021. Consequently, analysts are revising down their estimates of Indonesia’s economic growth through 2025.
Usually, the month of Ramadan brings a spike in consumer spending with it, as always in Indonesia, the world’s largest Muslim-majority country. Yet this year, the significant economic boom that usually accompanies the holy month of Ramadan didn’t happen, adding to the list of factors behind this year’s lackluster growth numbers. Almost every citizen expected a greater amount of spending in this cycle, although inflation and a host of other economic difficulties lessened the effect.
Uncertainty related to U.S. tariffs have thrown a new wrench into Indonesia’s economic environment. With the dynamic of global trade changing, these tariffs may prevent Indonesian industries from establishing footholds in foreign markets and worsening already fragile domestic conditions. Beyond this, the country is grappling with major issues such as budgetary shortfalls and the recent rise in joblessness due to the COVID-19 pandemic. All of these trends are sure to overload the public purse and consumer trust, both of which are essential for maintaining any long-term economic expansion.
In reaction to these developments, analysts have lowered their expectations for Indonesia’s economic growth in 2025. This mix of tariff-related uncertainties and the threat of massive job losses spurred many businesses to take a second look at what’s really fueling good economic performance. Jakarta, the capital and largest city in the region, is where these trends can be felt strongest. As such, it is a laboratory for government action and market innovation, and thus, a breeding ground for transformation.