Indonesia’s economy is showing signs of resilience in 2025, with the World Bank raising its growth forecast to 4.8% amid improving credit flows and targeted government stimulus. While this revision reflects cautious optimism, it still falls short of the government’s 5.2% target. Finance Minister Purbaya Yudhi Sadewa remains confident that a stronger fourth quarter will offset earlier slowdowns and restore growth momentum.
Key Facts & Background
- The World Bank revised Indonesia’s 2025 GDP growth projection from 4.7% to 4.8%, citing improved domestic demand and fiscal stimulus.
- The Indonesian government maintains a higher growth target of 5.2% for the year.
- Economic growth in the first half of 2025 was recorded at 4.99%, with a slowdown expected to persist through Q3.
- Minister of Finance Purbaya projects a rebound to 5.5% growth in Q4 2025, driven by policy interventions.
- The government injected Rp200 trillion into the banking system to stimulate credit growth, which reportedly rose from 8% to 11% in some state-owned banks (Himbara).
- The World Bank’s October 2025 East Asia and Pacific Economic Update highlights that Indonesia’s growth is currently supported by state-led subsidies and investment in food, energy, and transportation.
- The report warns that while short-term growth is strong, long-term sustainability depends on structural reforms.
- Recommended reforms include reducing non-tariff barriers in services, deregulation, and simplifying business licensing to boost job creation and competitiveness.
- Public demonstrations in 2025 were cited by Minister Purbaya as indicators of economic strain earlier in the year.
Strategic Insights
Indonesia’s upwardly revised growth forecast for 2025 reflects a delicate balancing act between short-term stimulus and long-term structural reform. The government’s proactive fiscal measures—particularly the Rp200 trillion liquidity injection into the banking sector—have begun to yield results, as evidenced by rising credit growth. This liquidity boost is expected to translate into stronger investment and consumption in Q4, potentially lifting full-year growth closer to the government’s 5.2% target.
However, the World Bank’s cautionary tone underscores a deeper concern: the sustainability of growth driven by subsidies and state-led investment. While such measures are effective in cushioning short-term shocks and supporting aggregate demand, they are not substitutes for productivity-enhancing reforms. Without addressing structural bottlenecks—such as regulatory complexity, labor informality, and limited competition in services—Indonesia risks plateauing below its potential growth trajectory.
The call for reform is not new, but it gains urgency in the current context. As global economic conditions remain uncertain and commodity tailwinds soften, Indonesia must pivot from stimulus-led growth to reform-driven expansion. Simplifying business licensing, reducing non-tariff barriers, and fostering a more competitive services sector are essential to unlocking private investment and creating high-quality jobs. These steps are also critical to attracting foreign direct investment and integrating more deeply into global value chains.
Moreover, the government’s ability to manage public expectations will be key. The demonstrations referenced by Minister Purbaya reflect underlying socioeconomic pressures that cannot be resolved through fiscal injections alone. A credible reform agenda—paired with transparent communication and inclusive policymaking—can help build public trust and ensure that growth is both equitable and durable.