Indonesia's economy demonstrated stable growth in 2025, supported by consumer demand, with a strong performance toward the end of the year. Data released by the country's statistics agency on Thursday indicated that gross domestic product (GDP) increased by 5.11% last year, following a 5.03% rise in 2024. This continues a multi-year trend of annual growth around 5% and aligns with central bank projections, which had estimated GDP growth for 2025 in the range of 4.7% to 5.5%.

Throughout 2025, Southeast Asia's largest economy experienced several rounds of volatility as tariffs weighed on trade, the Indonesian rupiah fluctuated, and growing fiscal concerns unsettled financial markets. Growth accelerated toward year-end, with fourth-quarter GDP expanding 5.39% year-on-year, surpassing the forecast of 5.03%.

Amalia Adininggar Widyasanti, head of Indonesia's statistics agency, noted that the year-end holiday season and government stimulus measures contributed to growth in the transportation sector during the quarter. From an expenditure perspective, household consumption was the largest contributor to economic growth in the final three months of the year, followed by investment. She added that manufacturing—the sector with the largest share of Indonesia's GDP—grew 5.4% year-on-year.

Indonesia's economic performance in 2026 will largely depend on government policies and their impact on consumption and fiscal sustainability. A trade agreement with the United States has removed a major source of uncertainty for exports, though commodity price fluctuations continue to pose risks. While expansionary fiscal measures could provide ongoing support for the economy, they may also dampen investor sentiment in Indonesian markets.

Concerns over potential loss of control in government spending have already affected Indonesia's financial markets. These worries have been amplified by the possibility that index provider MSCI Inc may downgrade the country's market status. A significant outflow of capital as a result could undermine the credibility of Indonesian assets, hinder investment, and negatively impact bonds and the rupiah.

Economists at HSBC Holdings PLC pointed out that the central bank governor has emphasized the need to improve the effectiveness of government stimulus programs. However, with fiscal deficits already elevated and inflation fluctuating within a range, the responsibility for supporting growth may fall more heavily on the central bank. Jason Tuvey of Capital Economics suggested that policymakers' efforts to accelerate economic growth could make interest rate cuts a viable option. He indicated that fiscal policy has become more supportive and that further monetary easing may be possible if the rupiah stabilizes and inflation cools.

Capital Economics anticipates that Indonesia's central bank will cut rates by 75 basis points by year-end, lowering the policy rate to 4.0%.