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INDONESIA: VIEW: ANZ Sees 2025 Growth Remaining At 5%

INDONESIA
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Q4 Indonesian GDP was as expected rising 0.5% q/q and 5.0% y/y up from 4.9% in Q3 leaving 2024 up 5% in line with 2023. ANZ believes that growth will stay around 5% in 2025 due to steady domestic demand and a “challenging” external environment. Despite President Prabowo’s goal of 8% growth the fiscal stance remains “conservative”. ANZ is forecasting only one more 25bp cut given its expectation of only 25bp from the Fed in 2025, but it sees the risks skewed to the downside.

  • ANZ believes that “Faster growth would hinge on either significant new initiatives from the Prabowo administration, or a stronger-than-anticipated recovery in Chinese demand. As things stand, the 2025 fiscal stance is conservative, targeting a deficit of 2.53% of GDP from 2.75% in 2024.”
  • “Expenditure showed that final domestic demand has remained the main growth engine. The contribution from government consumption picked up slightly, while that from private consumption and investment growth held steady.Net exports were a drag on growth.”
  • “Both private and government consumption growth picked up in 2024, but this was offset by a pullback in investment growth and a drag from net exports. Notably, investment expanded just 4.0% y/y in 2024, well below the 5.35% average seen before the pandemic.”
  • “Overall growth in 2024 would have been weaker were it not for a continued build-up in inventories. in 2025, supported by steady domestic demand.
  • A key constraint for Indonesian households is the need to rebuild savings, which were drawn down during the pandemic. Meanwhile, investment growth should improve as the uncertainty from the 2024 election year dissipates. However, the upside will be capped by several factors, including the shift in fiscal preference away from infrastructure.”
  • Indonesia's relatively lower dependence on exports means it is more insulated compared to some of its Asian peers from the prospect of a tougher US trade policy regime.”
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Q4 Indonesian GDP was as expected rising 0.5% q/q and 5.0% y/y up from 4.9% in Q3 leaving 2024 up 5% in line with 2023. ANZ believes that growth will stay around 5% in 2025 due to steady domestic demand and a “challenging” external environment. Despite President Prabowo’s goal of 8% growth the fiscal stance remains “conservative”. ANZ is forecasting only one more 25bp cut given its expectation of only 25bp from the Fed in 2025, but it sees the risks skewed to the downside.

  • ANZ believes that “Faster growth would hinge on either significant new initiatives from the Prabowo administration, or a stronger-than-anticipated recovery in Chinese demand. As things stand, the 2025 fiscal stance is conservative, targeting a deficit of 2.53% of GDP from 2.75% in 2024.”
  • “Expenditure showed that final domestic demand has remained the main growth engine. The contribution from government consumption picked up slightly, while that from private consumption and investment growth held steady.Net exports were a drag on growth.”
  • “Both private and government consumption growth picked up in 2024, but this was offset by a pullback in investment growth and a drag from net exports. Notably, investment expanded just 4.0% y/y in 2024, well below the 5.35% average seen before the pandemic.”
  • “Overall growth in 2024 would have been weaker were it not for a continued build-up in inventories. in 2025, supported by steady domestic demand.
  • A key constraint for Indonesian households is the need to rebuild savings, which were drawn down during the pandemic. Meanwhile, investment growth should improve as the uncertainty from the 2024 election year dissipates. However, the upside will be capped by several factors, including the shift in fiscal preference away from infrastructure.”
  • Indonesia's relatively lower dependence on exports means it is more insulated compared to some of its Asian peers from the prospect of a tougher US trade policy regime.”