The University of Indonesia (UI)'s Institute for Economic and Business Economics (LPEM FEB) released survey results, explaining that 55 percent of experts stated that Indonesia's current economic conditions are gloomy. Most economists predict that Indonesia's economic growth will contract. Furthermore, most experts agree that the labor market is worse than the previous three months. Several Indonesian macroeconomic indicators show less encouraging figures. The closing rupiah exchange rate on Tuesday, March 25, 2025, weakened again by 44 points to reach Rp 16,611.5 per US dollar. The JCI continued to decline, even triggering a 30-minute trading halt on March 18, 2025, at the Indonesia Stock Exchange. Furthermore, Indonesia experienced deflation for two consecutive months. The Central Statistics Agency (BPS) reported that Indonesia experienced deflation of 0.76 percent (% mtm) in January 2025 and 0.48 percent (% mtm) in February 2025.

The survey results released by the LPEM FEB UI and the macroeconomic conditions must be of concern to the government. These conditions can be seen as early warning signals of a potential economic recession in Indonesia. Also read: Is MBG More Urgent Than Jobs? This article will examine the threat of recession experienced by Indonesia and the hopes that can still be raised to anticipate it. 2025 will be a challenging period for the global economy, including Indonesia. Indonesia's economy has not fully recovered from the economic crisis caused by the COVID-19 pandemic several years ago. In general, several external and internal factors contribute to the threat of recession. The threat of recession triggered by external factors, including geopolitical instability, Donald Trump's economic policies in the United States, and the trade war between several major countries, are the main factors that can affect national economic growth. Meanwhile, internal conditions that exacerbate the situation include the government's debt burden due in 2025, reaching IDR 800.33 trillion. The announcement of Indonesia's budget deficit of IDR 31.2 trillion in the state budget realization through February 2025 further creates economic uncertainty in the market. Pressure on the rupiah could increase import costs, including raw materials and energy. This could hamper the growth of the industrial sector and worsen the current account deficit.

The storm of layoffs has marked a difficult start to the year for Indonesia. According to data from the Confederation of Indonesian Trade Unions (KSPI), 45,000 workers from 38 companies have been laid off. Another internal factor is the deflationary conditions that occurred at the beginning of the year. The low inflation rate is suspected to be due to weakening purchasing power. Companies need to anticipate this situation, as revenues could decline. A survey released by the LPEM FEB UI identified four causes of deflation in early 2025: declining household consumption as people prefer saving to spending. Consumption levels, which typically tend to increase during Ramadan, could boost Indonesia's economic vitality.

The second cause of deflation is the drastic drop in commodity prices, such as oil, crude palm oil (CPO), and coal. Furthermore, Bank Indonesia's continued tight monetary policy is suspected to be the cause of deflation in early 2025. The fourth cause is technological efficiency, using artificial intelligence and digitalization, which has resulted in lower production costs. The threat of recession could impact the Indonesian economy. If various negative factors persist, Indonesia's economic growth could slow to below 4 percent, far from the government's usual target of 5-6 percent. Economic uncertainty could make investors hesitant to invest in Indonesia, both in the form of foreign direct investment (FDI) and portfolio investment. Furthermore, if unemployment rises and purchasing power declines, social discontent could increase. This could trigger demonstrations and political instability, further worsening the economic situation. Considering the factors causing the threat of economic recession and its impact on the Indonesian economy, there are several strategies the government can implement. The first strategy is to provide fiscal incentives to economic actors. Hotel entrepreneurs have requested tax relaxation as a result of budget efficiency in the tourism sector. Other fiscal stimulus needs to be implemented by optimizing state spending to support productive sectors and maintaining social stability through targeted social assistance programs.

This policy is an effort to boost the public's declining purchasing power. At a macro level, the competitiveness of domestic industry needs to be improved. The manufacturing and creative industries sectors must be strengthened to reduce dependence on commodity exports.

Indonesia has initiated a policy of downstreaming natural resources, such as nickel and palm oil, to increase added value and reduce dependence on raw material exports. Sustaining this policy can provide long-term benefits for the national economy. Another strategy is to encourage economic digitalization. Accelerating digital transformation in various sectors can increase efficiency and open new opportunities for economic growth. Accelerating digital infrastructure development, including expanding internet access and adopting Industry 4.0 technologies, will drive digital sector growth and increase economic productivity. Finally, Indonesia needs to reduce dependence on food and energy imports by strengthening the agricultural and renewable energy sectors. The government has declared that Indonesia must be self-sufficient in food and even become the world's food barn by 2028. The threat of a recession in Indonesia in 2025 must be monitored and anticipated with appropriate policies. The government, the business world, and the public must work together to address economic challenges to ensure Indonesia remains on a sustainable growth path.

Source: Kompas
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