The International Monetary Fund (IMF) has downgraded Indonesia’s economic growth projection to 4.7% for both 2025 and 2026, signaling a slowdown in Southeast Asia’s largest economy.
The revised forecast, outlined in the IMF’s April 2025 World Economic Outlook (WEO), marks a significant drop from the earlier 5.1% estimate published in January.
This decline reflects rising global uncertainty, particularly stemming from intensifying trade tensions between the United States and China. The IMF’s Chief Economist, Pierre-Olivier Gourinchas, warned, “If tariff hikes and the accompanying uncertainty continue, global growth will slow significantly.”
Echoing the IMF’s outlook, Bank Indonesia Governor Perry Warjiyo also forecast a potential dip in economic growth this year.
“Growth is likely to fall slightly below the midpoint of our 4.7%-5.5% range,” he said during a press briefing on April 23, 2025, as reported by cnbcindonesia.com.
Warjiyo attributed the expected slowdown to lower exports to the U.S. and reduced demand from other countries as a result of the trade war.
Impact of Trade War and Policy Uncertainty
The root cause of this global economic cooling is the escalating tariff war initiated by U.S. President Donald Trump.
Since January 2025, Washington has imposed sweeping tariffs on steel, aluminum, vehicles, and various other imports. On April 2, retaliatory tariffs reached an all-time high—up to 245% on certain Chinese goods, while China responded with tariffs of up to 125% on U.S. imports.
Gourinchas described these policies as a “major negative shock to growth,” with tariff levels now exceeding those seen in over a century. Though some tariffs were temporarily suspended as of April 9, the IMF warns that long-term uncertainty could weaken economic projections across the board.
Economic Impact Across Asia
Asia is bearing the brunt of these tensions, especially emerging economies in the ASEAN region. The IMF now predicts a sharp decline in economic expansion in developing Asian countries, from 4.3% in 2024 to just 3.7% in 2025, before slightly recovering to 3.9% in 2026. In response, forecasts for China and India were also cut to 4% and 6.2% respectively, down from previous estimates of 4.6% and 6.5%.
Similarly, Japan’s 2025 growth forecast has been revised to 0.6%, a drop from the previous 1.1% estimate. Meanwhile, developed and developing Asian economies combined are projected to grow only 4.5% in 2025.
Indonesia Faces Higher Unemployment and Fiscal Challenges
Indonesia’s economic woes are not limited to slower GDP growth. The IMF also projects the national unemployment rate will rise to 5% in 2025 and 5.1% in 2026—higher than its ASEAN neighbors.
For comparison, Thailand’s unemployment is expected to stay at 1%, Vietnam’s to decline to 2%, and Malaysia’s to remain stable at 3.2%. The Philippines, meanwhile, will see an increase to 4.5%.
The IMF further downgraded Indonesia’s inflation outlook to 1.7% in 2025, down from 2.3% in 2024, but inflation is expected to rebound to 2.5% in 2026. Additionally, the country’s current account deficit is projected to widen to 1.5% in 2025 and 1.6% in 2026, compared to 0.6% in 2024.
“The global economic system is being reset after 80 years,” Gourinchas noted, as reported by bllobertechnoz.com, pointing out that this transformation, marked by protectionism and policy shifts, has made accurate forecasting even more difficult.
If realized, Indonesia’s projected 4.7% economic growth in 2025 will be its slowest since 2021, when the economy expanded only 3.69% in the wake of the pandemic. With external risks mounting and domestic vulnerabilities rising, both the IMF and Bank Indonesia call for vigilant policy coordination to navigate this uncertain economic landscape.
Source: cnbcindonesia.com, liputan6.com, Bloombergtechnoz.com
Photo Credit: Daniel Lee (pexels.com)
