Faisal Maliki Baskoro, Jakarta – Indonesia's economy is projected to grow by 4.7 percent in 2025 and 4.8 percent in 2026, according to the Organization for Economic Cooperation and Development (OECD) in its June 2025 Economic Outlook. The revised forecast is lower than the OECD's March 2025 projection of 4.9 percent and 5.0 percent, respectively, for the same years.

The Paris-based organization attributes the moderation in growth to domestic policy uncertainty and weaker external demand as global trade tensions persist.

"Low inflation and easing financial conditions will spur private consumption and investment," the OECD said in the report published on June 3. "However, uncertainty about domestic fiscal policy will temper these gains, while export growth is expected to slow amid global trade tensions."

Inflation in Indonesia is projected to rise moderately to 2.3 percent in 2025 and 3.0 percent in 2026, driven in part by currency depreciation feeding through to domestic prices. The current account deficit is expected to widen slightly, with the potential for further deterioration if commodity prices decline and squeeze export revenues.

Bank Indonesia has already begun loosening monetary policy, cutting its benchmark interest rate from 6.25 percent in August 2024 to 5.5 percent by May 2025. The OECD expects further rate cuts to support growth, as long as inflation remains within the central bank's target range.

On the fiscal side, policy is likely to remain broadly neutral in 2025. The government is preparing to roll out expanded social assistance programs, including free meals for schoolchildren and pregnant women, alongside fresh public investment through its sovereign wealth fund, Danantara. These initiatives will be offset by spending cuts in other areas to ensure the budget deficit remains below the legal ceiling of 3 percent of gross domestic product. Public debt currently stands at around 40 percent of GDP.

Indonesia's economy slowed in early 2025, with first-quarter growth easing to 4.9 percent, as weak investment and subdued consumer sentiment weighed on activity. Still, the labor market remained resilient, with unemployment falling to a two-decade low of 4.8 percent. Low inflation continued to support real household incomes.

Risks to the outlook remain tilted to the downside. The OECD warned that potential capital outflows and a sharper-than-expected slowdown in China, Indonesia's largest trading partner, could derail recovery. On the upside, effective execution of sovereign wealth fund investments could attract private capital and accelerate infrastructure development.

The OECD called for structural reforms to underpin long-term growth, including improving the business climate for foreign investors, enhancing the efficiency of public spending, and reducing informality to broaden the tax base. Policies to support female labor force participation, such as funding maternity leave through social insurance, were also recommended.

Meanwhile, global growth is expected to ease from 3.3 percent in 2024 to 2.9 percent in both 2025 and 2026. The slowdown is likely to be most pronounced in the United States, Canada, Mexico, and China, with milder downward revisions in other regions.

US economic growth is forecast to decline from 2.8 percent in 2024 to 1.6 percent in 2025 and 1.5 percent in 2026. In the euro area, growth is projected to inch up from 0.8 percent this year to 1.0 percent in 2025 and 1.2 percent in 2026. China's expansion is expected to moderate from 5.0 percent in 2024 to 4.7 percent in 2025 and 4.3 percent in 2026.

"The global economy has shifted from a period of resilient growth and declining inflation to a more uncertain path," OECD Secretary-General Mathias Cormann said.

"Our latest economic outlook shows that today's policy uncertainty is weakening trade and investment, diminishing consumer and business confidence, and curbing growth prospects. Governments need to engage with each other to address issues in the global trading system positively and constructively through dialogue, keeping markets open and preserving the economic benefits of rules-based global trade for competition, innovation, productivity, efficiency, and ultimately growth," he said.

Source: https://jakartaglobe.id/business/oecd-cuts-indonesias-2025-growth-forecast-to-47-percen