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Riding the uncertainties: Maintaining Indonesia's economic resilience

Amid global pressures, Indonesia’s economic growth in 2024 and 2025 is projected to remain stable at around 5.0 percent to 5.1 percent. One of the main challenges lies in uneven domestic consumption patterns.

Andhi Prasetyo Hadi (Bank Mandiri)
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Jakarta
Wed, January 22, 2025

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Riding the uncertainties: Maintaining Indonesia's economic resilience A visitor takes a look at shoes on display in the Grand Indonesia shopping mall in Jakarta on Aug. 29, 2024. (Antara/Aprillio Akbar)

T

he 2024-2025 period will remain challenging for the global economy. Various geopolitical, economic and policy factors are creating significant uncertainty, affecting both stability and growth across different regions.

The year 2024 was a “super election year”, in which several major countries, including the United States, held elections that could potentially change the direction of their economic policies. This uncertainty added extra challenges for market players, who had to navigate the possibility of significant shifts in fiscal and international trade policies.

From another perspective, economic slowdowns became evident in several key countries, including the US, the European Union and China. The EU and Japan experienced stagnant consumption and low productivity, while China faced structural deceleration, such as a weak property sector and declining domestic consumption. Even so, the US remained the main driver of the global economy, showing stronger prospects in 2025, albeit still grappling with high inflation pressure.

Nevertheless, the dominance of the US economy also presents its own challenges. The Federal Funds Rate (FFR) policy direction is one of the main factors creating uncertainty in global financial markets. The trajectory of US monetary policy indicates that expectations for a reduction in the FFR will be more limited than previously projected. This is driven by two major factors: the resilience of the US domestic economy, which makes inflation more persistent, and concerns arising from the newly elected Trump administration, particularly regarding potential tariffs on imported goods, which ultimately contribute to inflation. Higher-than-target inflation restricts the Federal Reserve’s ability to significantly ease its monetary policy.

Limited room for lowering interest rates has increased market volatility. Capital outflows have occurred as investors move their funds to safe-haven assets such as US government bonds, thereby tightening global liquidity and putting pressure on emerging markets, including Indonesia.

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Amid global pressures, Indonesia’s economic growth in 2024 and 2025 is projected to remain stable at around 5.0 percent to 5.1 percent. One of the main challenges lies in uneven domestic consumption patterns.

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