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Economic growth

Indonesia's Economy Faces Uncertainty Amidst Manufacturing Slump

Strategic Insights

— 1 min read

Indonesian businesses are sounding alarm bells as the economy grapples with a slowdown in manufacturing and domestic consumption, despite a recent surge in GDP growth. South-east Asia's largest economy, a commodities powerhouse, is facing challenges stemming from waning purchasing power, a shrinking middle class, and mass layoffs in manufacturing. Economists and businesses attribute the bullish GDP data to government stimulus and export frontloading ahead of US tariffs, sparking concerns over Indonesia's ability to maintain its 5 percent annual growth rate.

Key Takeaways:

  • Indonesian Employers' Association (Apindo) chair Shinta Kamdani warned that the strategy is shifting from expansion to survival, prioritizing job retention and supply chain maintenance.
  • A majority of Apindo members are in labor-intensive manufacturing industries, which have been hit hard by weaker domestic demand and competition from rival regional hubs.
  • President Prabowo Subianto's administration has cut government expenditure to redirect funds towards the $28bn free school meals programme.
  • Apindo has called on the government to speed up deregulation to attract more investment and support manufacturing.
  • Indonesia's total investment rose 11.5% to Rp477.7tn ($29.1bn) in the second quarter, while foreign direct investment fell 7% to Rp202.2tn.
  • The country faces a 19% tariff from the US, but has stated that the level is manageable and competitive with neighbors like Malaysia and Thailand.

Statistics:

  • Indonesia's economy expanded 5.1% in the second quarter on a year earlier.
  • GDP growth hit a three-year low of 4.9% in the first three months.
  • Apindo's members have been laying off thousands of workers since the start of the year.
  • Government expenditure has been redirected towards the $28bn free school meals programme.
  • Total investment for the second quarter rose 11.5% to Rp477.7tn ($29.1bn).
  • Foreign direct investment in the same quarter fell 7% to Rp202.2tn.

Sources:

  • The Jakarta Post
  • Bloomberg News
  • Reuters

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