Indonesia’s Economic Forecast Trails in IMF Growth Projection

The latest World Economic Outlook from the International Monetary Fund (IMF) shows a downward revision for Indonesia’s economic forecast. The report, released in April 2025, projects that Indonesia’s economy will grow only 4.7% in both 2025 and 2026. This marks a decline from the earlier January forecast of 5.1% and signals broader concerns amid escalating global trade tensions.

IMF Slashes Indonesia’s Economic Forecast for 2025

The IMF has lowered its outlook for Indonesia’s economic growth, reflecting a broader slowdown and increasing uncertainty in the global economy. This reflects the broader global slowdown and rising uncertainty, especially due to trade tensions and slowing investment. The revised projection signals that Indonesia may face mounting challenges in keeping pace with regional economic growth.

The IMF’s Chief Economist, Pierre-Olivier Gourinchas, explained during a press conference, “If trade tensions continue, the sudden rise in tariffs and the uncertainty that accompanies them will significantly slow global growth.” he said, as reported by CNBC Indonesia.

Trade Tensions Driving Global Slowdown

Global trade tensions are playing a central role in reshaping international economic projections. The United States began imposing a new round of steep tariffs at the beginning of 2025. These escalated into a broader trade war, prompting strong retaliatory actions from China.

The IMF notes, “The rapid escalation of trade tensions and the extremely high level of policy uncertainty are expected to have a significant impact on global economic activity.” These actions have brought U.S. effective tariff levels to their highest point in a century, disrupting supply chains and reducing cross-border investment.

Emerging Market Slowdown Deepens

The revised IMF outlook shows that Indonesia is not alone. Other emerging economies, especially in Southeast Asia, are also facing weaker growth projections. The Philippines is forecast to expand by 5.5% in 2025, down from 5.7% in 2024. Vietnam’s economy, which grew by 7.1% in 2024, is expected to slow significantly to 5.2% in 2025 and just 4% in 2026.

Malaysia’s growth will also dip from 5.1% in 2024 to 4.1% in 2025, and further down to 3.8% in 2026. In comparison, Indonesia’s consistent 4.7% forecast highlights the shared burden of these regional economies under current trade dynamics. Gourinchas added, “We have lowered the growth forecast for the group of emerging markets by 0.5 percentage points, to 3.7%.”

Inflation, Unemployment, and Fiscal Pressure

While inflation in Indonesia appears to be under control, it reflects a mixed economic outlook. The IMF expects inflation to decline from 2.3% in 2024 to 1.7% in 2025, before rebounding to 2.5% in 2026. At the same time, unemployment is projected to increase gradually from 4.9% in 2024 to 5.1% in 2026.

Another concern is Indonesia’s widening current account deficit. The IMF forecasts a deeper shortfall, from 0.6% of GDP in 2024 to 1.5% in 2025, and further to 1.6% in 2026. These pressures could limit fiscal flexibility in responding to economic shocks.

Regional Lag: Why Indonesia Trails Its Peers

While reflective of global trends, Indonesia’s economic forecast shows it trailing behind some of its peers. Although growth in countries like Vietnam and Malaysia is slowing, Indonesia’s steady but lower rate raises questions about competitiveness.

Contributing factors may include slower domestic investment, weaker export performance, and a cautious fiscal stance. Without robust policy interventions, Indonesia risks falling further behind in Southeast Asia’s race for economic resilience.

What’s Next for Indonesia’s Economy

The IMF’s latest report confirms that Indonesia’s economic forecast has taken a hit amid global trade turbulence. With inflation easing and unemployment ticking upward, the government faces the challenge of balancing stability and growth.

Stronger policy responses and investment in productivity may be necessary to reverse the trend. If not addressed, Indonesia may continue trailing its regional peers well into the next economic cycle.