Rate Cuts Expected in 2025 As the Indonesia Economy Grew 5.03%
The Indonesian economy grew by 5.03% in 2025. Although this is the country’s slowest expansion in three years, it was successful in maintaining its steady pace. While the country’s growth aligns with expectations, it still seems to fall short of the nation’s ambitious 8% target.
The Reason for the Slower Growth
The slower growth was due to several factors, including the central bank’s cutting of rates, government incentives, and increased investments. Indonesia has consistently expanded by 5% annually since the pandemic, with Bank Indonesia (BI) reducing interest rates by 50 basis points since September to help foster growth. Another rate cut, potentially in 2025, could raise the country’s GDP growth.
Free Meals Program to Boost Economic Activity
The free meals program, launched in January, is expected to boost economic activity this year. This key initiative targets 83 million children and pregnant women and is expected to drive growth in the food and transportation sectors. Other policies, such as electricity tariff discounts and affordable housing projects, are also aimed at strengthening purchasing power and economic expansion.
Political campaign spending and increased investment also supported the economy in 2024, with investment growing at its fastest rate in six years. However, BI recently lowered its 2025 growth forecast to a range of 4.7%—5.5% due to potential U.S. tariffs that could disrupt trade. Slow car sales indicate a weak demand for durable goods, increasing the likelihood of further interest rate cuts to sustain growth while maintaining currency stability.
Household consumption, which makes up over half of the Indonesian economy’s GDP, slightly increased due to holiday spending. Investment also grew, albeit at a slower pace than in the previous quarter.
