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May deflation signals weak consumer demand, industry struggles in Indonesia

Source
Jakarta Globe - June 3, 2025

Rama Sukarta, Jakarta – Indonesia's economy is showing signs of a slowdown following a surprise deflation of 0.37 percent in May 2025, raising concerns about weakening consumer demand and the lack of industrial stimulus.

The deflation comes amid a series of other softening indicators, including a sharp drop in Southeast Asia's largest economy's trade surplus to just $150 million and a slowdown in first-quarter GDP growth to 4.87 percent, down from 5.02 percent in the previous quarter.

Esther Sri Astuti, Executive Director of the Institute for Development of Economics and Finance (INDEF), said the deflation was anticipated given the weak economic momentum since the beginning of the year.

"The signs were clear from the start. Unlike last year's election-fueled spending, this year has been dominated by contractionary fiscal policies and low economic activity," Esther told Beritasatu.com on Tuesday.

Following President Prabowo Subianto's inauguration in late 2024, the government implemented spending cuts. However, Esther argues these were effectively budget reallocations that had a contractionary effect on the broader economy.

"This isn't just post-Eid price normalization. It reflects eroding consumer purchasing power and the absence of meaningful stimulus for the industrial sector," she said.

Esther warned that the deflation could trigger a ripple effect, particularly in the labor market, where layoffs have already begun in sectors such as manufacturing, private services, and trade.

"If the government doesn't intervene with pro-industry measures, more layoffs are inevitable. Current policy packages mostly support household consumption, but industries are left without breathing room, there's no tax relief or investment stimulus," she said.

The Indonesian government has yet to roll out significant new industrial incentives, while private investment remains sluggish due to regulatory complexity and rising global uncertainty.

Esther called on policymakers to immediately shift toward investment- and industry-friendly policies, including a review of burdensome regulations and more robust incentives for both domestic and foreign investors.

"Stimulating consumption isn't enough. Investment must also be a priority. If industries aren't supported, they'll resort to layoffs. We're already seeing this," she concluded.

Source: https://jakartaglobe.id/business/may-deflation-signals-weak-consumer-demand-industry-struggles-in-indonesi

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