Economy expands less than expected in Q1 2025

Economy loses some steam in Q1: GDP grew 4.9% year on year in the first quarter of 2025, down marginally from 5.0% in the fourth quarter of last year and slightly below market expectations. This marked the lowest rate since Q3 2021, though it remained largely in line with the average growth rate seen in the past three years and surpassed most expansions elsewhere in ASEAN. Quarter-on-quarter, the economy shrank 1.0% in Q1 2025 (Q4 2024: +0.5% qoq), while seasonally adjusted GDP rose 1.1% in Q1, slightly down on the prior quarter (Q4 2024: +1.2% qoq s.a.).

Momentum weakens across the board: The moderation in annual GDP growth was broad-based. Private consumption growth fell to 4.9% in Q1, marking the weakest expansion since Q4 2023 (Q4 2024: +5.0% yoy). The slowdown came despite the timing of Eid al-Fitr holiday season falling in March this year—unlike April in 2024—which should have boosted household consumption. Moreover, public consumption dropped at the sharpest pace since Q1 2023, contracting 1.4% (Q4 2024: +4.2% yoy), partly on a high base effect due to the pre-election spending surge a year earlier. Fixed investment growth fell to 2.1% in Q1, marking the worst result in two years (Q4 2024: +5.0% yoy). Growth in exports of goods and services also fell to 6.8% in Q1 (Q4 2024: +7.6% yoy). In addition, imports growth moderated to 4.0% in Q1 (Q4 2024: +10.4% yoy).

Growth to be tepid this year: Our Consensus is for GDP growth to remain near Q1’s level through Q4 2025. Elevated interest rates for much of the year are set to keep a lid on domestic demand, and U.S. tariff hikes plus global trade uncertainty should weigh on exports. As a result, the economy will fall short of President Prabowo Subianto’s long-term target of 8.0% growth in 2025 as a whole, which could prompt the government to loosen its budget. Stronger-than-expected fiscal stimulus could jumpstart the economy later this year, while mounting headwinds to external demand pose a downside risk to GDP growth.

Panelist insight: United Overseas Bank analysts Enrico Tanuwidjaja and Vincentius Ming Shen said: "Given the rising uncertainty ahead due to the ongoing reciprocal tariffs imposition by the US and possibly the adverse effects of tariff retaliation by major economies, we expect Indonesia's economy to now grow below the 5% mark this year. The weaker-than-expected 1Q25 GDP growth figure also added to our downward revision of 2025 GDP projection […]. Support from government spending is called for to sustain growth from slipping further and investment is hoped to bring about another growth-supporting factor this year, despite all the ongoing uncertainty.” EIU analysts commented: “The national accounts data suggest that the macroeconomy is in need of a boost from looser monetary policy. However, EIU believes that Bank Indonesia’s (BI, the central bank) hands are tied. […] BI will be limited to just one more rate cut this year, curtailing the support it can lend to domestic demand. The lagged impact of the rate cuts will translate into higher household consumption and investment spending in the fourth quarter of 2025 at the earliest. We expect government spending to increase as the government attempts to stimulate growth. This leads us to expect the fiscal deficit target to be breached, as expenditure will increase as revenue growth slows.”

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