Ayos Carlos, Jakarta – Indonesia's economy is showing signs of distress amid slowing growth, rising layoffs, and deflation, prompting calls for the government to prioritize real policy responses over reassuring rhetoric.

University of Indonesia economist Telisa Aulia Falianty said the signs of economic fatigue became more evident in early 2025, with weak consumer purchasing power, widespread layoffs, and a decline in overall demand.

"The government must stop insisting that the economy is doing just fine. Optimism is important, but it must be grounded in reality and matched with serious policy action," Telisa said on Tuesday.

Indonesia's gross domestic product (GDP) expanded by 4.87 percent in the first quarter of 2025 – down from 5.04 percent in Q4-2024 and 5.02 percent in Q1-2024. The slowdown has been accompanied by a wave of layoffs, especially in key sectors such as textiles and e-commerce. In one high-profile case, textile giant Sritex went bankrupt, leaving over 10,000 workers unemployed.

Adding to the concerns, Indonesia recorded deflation of 0.37 percent in May 2025, reflecting further weakness in consumer spending.

"Deflation under these conditions is a red flag. It confirms that purchasing power is under pressure, and this comes while mass layoffs are still ongoing," Telisa noted. "Without swift and meaningful policy measures, this could spiral further."

Stimulus measures insufficient

To address the slowdown, the government has introduced a package of five stimulus programs for the June-July 2025 period: discounts on transport tickets and toll fees, food aid, wage subsidies, and cuts to workers' accident insurance premiums. These initiatives aim to boost household spending during the school holiday season.

While welcoming the effort, Telisa argued that the measures fall short of what is needed to reinvigorate growth and protect jobs.

"We need more labor-intensive programs financed by the state budget that can quickly absorb workers," she said. "Public spending should also prioritize domestic industries and support micro, small, and medium enterprises (MSMEs)."

Call for monetary stimulus

Beyond fiscal stimulus, Telisa also called for stronger monetary interventions, particularly lower interest rates, to stimulate lending and business activity.

"Monetary stimulus – especially in the form of lower loan interest rates – is essential. Banks must transmit these policies more effectively so that business credit can grow," she added.

Without coordinated and sustained efforts on both fiscal and monetary fronts, Telisa warned, Indonesia risks entering a cycle of slowing growth, eroding purchasing power, and further job losses.

Source: https://jakartaglobe.id/business/economy-falters-as-expert-urges-government-to-move-beyond-rhetori