- Indonesia’s new government has completed its first 100 days in office with high approval ratings.
- Social assistance measures, rationalisation in spending, and moves …
- …to strengthen global relations were key achievements.
- Tariff risks from the US loom.
- Timing will be ‘opportunistic’, with a pause in February.
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Indonesia’s new government recently completed first 100 days in office. A survey conducted by Kompas media group in January gave a high approval rating of 80.9%, reflecting satisfaction on security and social welfare issues. Key developments in this period include:
- Social assistance programs and human capital focus.
- Budgetary measures, especially rationalisation of expenditure.
- Strengthening international relations.
(See pdf for details)
Negative fiscal impulse on growth, temporary inflation slump on policy measures
Growth faces two-way forces in 1H25. 2Q is routinely a seasonally strong period for growth on the back of religious activities (Lebaran). At the same time, the government’s welfare policies, macroprudential relief to selected sectors, minimum wage increase, and better real wage growth are expected to support growth. Concurrently, spending cuts are likely to impart a negative fiscal impulse, hurting confidence and delaying the participation of private sector players over viability of projects. Add to this, a jump in election-related activity in 2Q24 will distort base effects for the comparable period this year. Goods trade, is meanwhile, likely to face narrower trade surpluses on moderating growth elsewhere. Counting on a recovery in 2H, we maintain our growth forecast at 5.1% yoy for 2025, marginally faster than 2024’s 5.03%.
(See pdf for details)
BI expected to be cautious near-term but stay on easing path
Bank Indonesia surprised with a 25bp rate cut in January signaling a shift in focus towards growth, as the decision was accompanied by modest downward revisions to its GDP projections. The cut contrasted with the cautious tone over rupiah volatility at the December meeting and was delivered despite the currency’s extended weakness into this year on the back of a strong dollar. The rate cut was also transmitted to short-term market rates, including SRBIs, as shown in the next chart.
(See pdf for details)
Rough global waters
Tariff risks will continue to linger as the US administration mulls over further direct as well as reciprocal tariffs on trading partners. US runs a small trade deficit with Indonesia, which stood at $18bn in 2024 (1.5% share) and ranking 15th in the overall deficit list. The trade deficit has nearly doubled from 2015 levels. Risks from reciprocal tariffs is smaller for Indonesia, although investment curbs (like asked of Apple) and other non-tariff barriers are also likely to be under scrutiny. With Indonesia’s investment and trade linkages more tied to China than the US, growth implications from the former become important.
(See pdf for details)
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