Economists Reveal Factors Driving Indonesia’s Economic Growth Above 5 Percent

Jakarta – Permata Bank, through the Permata Institute for Economic Research (PIER), has released the results of its latest study on Indonesia’s economic performance in the second quarter of 2025. The data shows that national economic growth increased to 5.12 percent year-on-year, higher than the previous quarter’s 4.87 percent, and exceeding the market consensus of 4.8 percent.

This achievement marks the fastest growth rate since the second quarter of 2023, driven by stronger investment (Gross Fixed Capital Formation/GFCF) and household consumption, despite continued contraction in government spending.

This growth above expectations also reflects the resilience of the domestic economy amid global uncertainty. Private investment, particularly in machinery and equipment, surged significantly, in line with increased imports of capital goods and the acceleration of a number of infrastructure projects.

“Household consumption also remained solid, supported by the momentum of the Eid al-Fitr and Eid al-Adha holidays. Looking ahead, external challenges such as global trade tensions still need to be monitored,” said Permata Bank’s Chief Economist, Josua Pardede, during the Virtual Economic Review: First Half of 2025 Media Briefing organized by the Permata Institute for Economic Research (PIER) on Monday, August 11, 2025.

Throughout the second quarter of 2025, investment grew 6.99 percent year-on-year, the highest since early 2021, with significant growth in the machinery and equipment category of 25.30 percent and buildings and structures of 4.89 percent.

Meanwhile, household consumption grew by 4.97 percent year-on-year, slightly up from the previous quarter, particularly in the transportation and communication, food and beverage, and restaurants and hotels sectors.

In terms of foreign trade, exports grew by 10.67 percent and imports by 11.65 percent year-on-year, reflecting front-loading activities by trading partners who purchased imported products earlier and stockpiled them ahead of the implementation of reciprocal tariffs by the US.

“The manufacturing, trade, information and communication, and construction sectors were the main contributors to growth, while other service sectors recorded the highest growth of 11.31 percent,” added Josua.

Indonesia’s Economic Growth Projection for the Second Half

By maintaining accommodative fiscal and monetary policies, the government projects Indonesia’s economic growth in 2025 to be in the range of 4.8 to 5.1 percent, with a midpoint of 4.9 percent.

Economic growth in the second semester is expected to be supported by government spending and stimulus packages to maintain household consumption.

“Investment will be supported by government capital expenditure and accommodative monetary policy, including continued interest rate cuts,” Josua concluded. (*) Steven Widjaja