Indonesia's economic growth is expected to slow in the first quarter of this year.

Muhammad Rizal Taufikurahman, Head of Macroeconomics and Finance at the Institute for Development of Economics and Finance (Indef), estimates that Indonesia's economic growth in the first quarter of 2025 will reach 4.85% year-on-year, a slight decrease compared to the 5.02% recorded in the fourth quarter of 2024.

On a quarterly basis, he said, Gross Domestic Product (GDP) is estimated to contract by 0.8%.

This aligns with the seasonal pattern following the year-end holidays and reflects economic activity amid global uncertainty and domestic pressures.

Rizal said that although the government had increased state spending, the response from the consumption and investment sectors was still limited.

"Several sectors, such as agriculture and the manufacturing industry, are predicted to continue growing, but not strongly enough to push the overall growth rate beyond 5%," Rizal told Kontan.co.id on Friday (May 2).

State spending is a key factor, with the government already realizing more than IDR 620 trillion in the first quarter of 2025, and a significant increase in spending occurring in March.

On the other hand, Rizal said, Bank Indonesia's (BI) monetary policy relaxation with a 50 bps interest rate cut since the end of last year is expected to support consumption and investment.

However, the impact of this policy has not been fully felt in the short term.

A number of inhibiting factors remain. Weakening household consumption due to declining consumer confidence and price pressures are holding back economic growth.

Another factor, said Rizal, is the slowdown in exports caused by a decline in global demand, especially from China.

Geopolitical tensions and the potential for new United States (US) tariff policies on Indonesian export commodities have also created uncertainty that has negatively impacted external sector performance.

This is quite worrying because historically, Indonesia's economic growth in the first quarter has generally been at a fairly high level.

If the Covid-19 pandemic of 2020 and 2021 is excluded from the calculation, Indonesia's average economic growth in the first quarter from 2015 to 2024 was 5.01% year-on-year.

Bank Mandiri reports that household consumption growth is expected to weaken to below 4.9% (yoy) in the first quarter of 2025, down from 5.0% (yoy) in the fourth quarter of 2024. This reflects a tendency for people to spend more cautiously, as a portion of their income is allocated to precautionary savings.

The amount of Third Party Funds (DPK) in the form of individual savings actually increased significantly in March 2025, or during Ramadan and leading up to Eid al-Fitr.

The increase in savings during Ramadan is considered anomalous, considering that people typically deplete their savings during Ramadan due to high consumption. For the record, Ramadan falls on March 1, 2025, and ends on March 30, while Eid al-Fitr falls on March 31, 2025. Based on CNBC Indonesia Research's monitoring, as of March 2025, personal savings deposits grew by 6.4% year-on-year (yoy), even higher than the 5.7% growth in the same period the previous year. Personal savings deposits growth in March 2025 was also the highest since November 2022, or approximately 2.5 years.

Despite the weakening of household consumption, the level of foreign investment entering Indonesia is quite good.

Minister of Investment and Downstream Development/Head of the Investment Coordinating Board (BKPM) Rosan Roeslani noted that realized investment in the first quarter of 2025 reached Rp 465.2 trillion, a 15.9% increase compared to the fourth quarter of 2024 and a 2.7% increase compared to the same period last year.

Of this figure, foreign direct investment (PMA) amounted to IDR 230.4 trillion, or 49.3% of total realized investment. Domestic investment, meanwhile, amounted to IDR 234.8 trillion, or 50.5% of total realized investment. This PMA increased by 12.7% in the first quarter of 2025.

Meanwhile, the largest amount of FDI came from Singapore, at US$4.6 billion. Hong Kong came in second with US$2.2 billion, and China came in third with US$1.8 billion. Malaysia came in fourth with US$1 billion, and Japan came in fourth with US$1 billion.

Government Spending Surges, Exports Remain Positive

Government spending grew 1.37% in January-March 2025, reaching IDR 620.3 trillion, or 17.1% from the previous day. This increase was dominated by employee spending, which rose by around IDR 9 trillion, or around 12.4%, due to the holiday bonus (THR) payment period.

Meanwhile, Indonesia's trade balance recorded a surplus of US$10.92 billion in the first quarter of 2025, exceeding the US$7.41 billion surplus recorded in the same period last year. The March 2025 trade surplus was even higher, at US$4.33 billion.

On a monthly basis, total exports increased by 5.95% and on an annual basis they climbed by 3.16%./p

Likewise, imports increased monthly and annually by 0.38% and 5.34% respectively.

Source: CNBC & Kontan

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