Indonesia’s economy shows mounting signs of strain, with slowing GDP growth, rising unemployment, and shrinking exports – all of which have raised concerns about a prolonged downturn.
Over the past month, signs of a weakening domestic economy have become increasingly evident. Various economic indicators suggest that Indonesia’s economy is slowing and in need of a breakthrough to regain momentum. From macroeconomic performance to rising unemployment and widespread redundancies, several signals indicate that the economy is flashing yellow lights.
As quoted from the press on Tuesday, the 3rd of June, here are some key indicators that reflect this decline and serve as warnings for the nation:
Manufacturing PMI Contracts
Indonesia’s manufacturing Purchasing Managers’ Index (PMI) fell once again to 47.4 in May 2025, marking a contraction for the second consecutive month. Both domestic and overseas demand weakened, leading to reduced production activity.
Deflation in May 2025
The Central Statistics Agency recorded deflation of 0.37% in May, the third occurrence this year. While falling food prices contributed to this, it may also signal a weakening consumer purchasing power.
An economist from the Bright Institute, Awalil Rizky, has highlighted several impacts of the deflation currently taking place in Indonesia. According to him, the deflation experienced over the past few months is not merely an economic symptom, but a sign of the weakening foundations of the national economy.
“Prolonged deflation sends a worrying signal for household consumption. It indicates that the public is holding back on spending due to the economic pressures they are facing,” Rizky told the press on Tuesday, the 3rd of June.
Rizky, furthermore, explained that business owners would tend to reduce production capacity to minimise the risk of losses. As a result, profit margins narrow and cost-cutting measures often lead to layoffs.
“When employment opportunities diminish, people’s purchasing power is hit once again. This can trigger a cycle of economic weakness that keeps repeating itself,” he added.
GDP Growth Slows in Q1 2025
The economy expanded by just 4.87% year-on-year in the first quarter of 2025, the slowest pace since 2021 — despite the boost traditionally provided by the Ramadan period. This suggests that household consumption has yet to fully drive GDP growth.
Trade Surplus Narrows
Indonesia’s trade surplus stood at only US$150 million in April 2025 – its lowest level in 60 months. Exports declined at a faster rate than imports, largely due to the effects of ongoing global trade tensions.
Exports Plummet
Exports in April 2025 were recorded at US$20.74 billion – a drop from the previous month. The decline in oil and gas exports, along with foreign exchange revenues, has affected state income and the performance of the industrial sector.
Layoffs on the Rise
The Chairperson of the Indonesian Employers’ Association (Asosiasi Pengusaha Indonesia), Shinta Kamdani, reported that mass redundancies continue to increase. Throughout 2024-2025, hundreds of thousands of workers have lost their jobs as labour-intensive industries struggle.
Unemployment Increases
As of February 2025, the number of unemployed people rose by 83,000 to 7.28 million. This increase puts further pressure on household purchasing power and could potentially exacerbate poverty levels.
Slowing Bank Credit Growth
As of April 2025, credit growth reached only 8.88% year-on-year. This deceleration risks constraining business activity and household consumption.
Thin Profit Margins for Major Banks
The four largest state-owned banks in Indonesia collectively recorded a net profit of Rp57.28 trillion, with modest growth of just 0.55% year-on-year. This trend may prompt tighter lending policies and affect the real sector. Weak profit growth could also dampen investor interest in the banking sector, given lower profit prospects. This may impact bank share prices on the capital market and reduce capital flows into the financial sector.