Indonesian economy 2025 and the latest IHSG

The Indonesian economy will be under sharp scrutiny in 2025. Gross domestic product (GDP) growth was recorded above 5 percent in the second quarter, surpassing the expectations of many analysts. On the other hand, the stock market was briefly shaken by political turmoil, though the Jakarta Composite Index (IHSG) gradually showed signs of stability. This situation describes the dynamics between growth optimism and the structural and social challenges faced by the country.

Economic Growth Exceeds Target

Statistics Indonesia reports that Indonesia's GDP grew by around 5.12 percent in the second quarter of 2025. This figure is higher than the 4.8 percent forecast. International organizations such as the OECD and IFG Progress also place Indonesia's growth projection in the range of 4.7 to 5.0 percent throughout the year.

That growth is supported by household consumption and an increase in foreign investment. Investment realization in the first half of 2025 reached Rp 942 trillion or equivalent to USD 57.8 billion. This amount rose by 13.6 percent compared with the previous year. The incoming investment also absorbs about 1.2 million workers.

However, behind this positive note, the manufacturing sector is actually facing pressure. The contribution of the manufacturing industry to GDP declined significantly from 32 percent in 2002 to only 19 percent in 2024. In fact, the closure of Sritex has caused more than 42 thousand workers to lose their jobs in the first half of this year.

Trade Balance and Inflation

The trade surplus has become one of the economy's pillars. In July 2025, the trade balance recorded a surplus of around USD 4.17 billion, up slightly from the previous month. Export performance is primarily driven by commodities such as coal, nickel, and agricultural products.

Nevertheless, inflation remains a concern. The OECD predicts Indonesia's inflation rate will rise to 2.3 percent in 2025 and 3.0 percent in 2026. Inflationary pressures come from the depreciation of the exchange rate, which causes import prices to rise. The government reiterates its commitment to maintaining price stability through the coordination of fiscal and monetary policy.

Political Stability and Its Impact

The domestic political situation has become a factor that influences market confidence. A wave of national protests broke out after the housing allowance policy worth Rp 50 million per month for members of the legislature was announced. This action triggered widespread discontent and culminated in riots that caused fatalities and damage to public assets.

The government responded by canceling that policy, restricting officials' overseas travel, and engaging in public dialogue. Although that step eases the tension, the public's trust in political institutions still needs to be restored. Political instability has directly impacted the stock market.

IHSG was shaken, then stabilized.

The Composite Stock Price Index briefly fell as much as 3.34 percent on September 1, 2025, as national protests peaked. This decline has become the worst in almost five months. In a few days, market capitalization lost billions of rupiahs due to a massive sell-off.

However, as the first week of September drew to a close, the IHSG began to show signs of stability. On September 7, 2025, IHSG stood at the 7,867 level, down 0.23 percent or 18.5 points from the previous day. The daily trading range is between 7.855 and 7.899. In the annual notes, the IHSG briefly touched a high of 8,022 and a low of 5,882.

Trading volume increased up to 40 percent during the period of political crisis, reflecting the high market volatility. Nevertheless, analysts assess that foreign investors still view Indonesia's medium-term prospects as quite attractive because the economy's fundamentals remain intact.

Burden Sharing Policy

Bank Indonesia, together with the government, has agreed on a burden-sharing scheme to support national financing. In this scheme, Bank Indonesia raises the interest rate on government deposits at the central bank. The interest burden is then shared jointly between the government and Bank Indonesia.

This measure is aimed at strengthening fiscal stability, supporting the housing sector, cooperatives, and small and medium-sized enterprises. Some economists believe that this policy can curb inflationary pressures while also maintaining market liquidity.

Structural Challenge

Although there is good news on growth and trade, structural challenges cannot be ignored. The government's shift in focus to extractive sectors such as nickel and coal is deemed insufficient to create inclusive employment opportunities. On the other hand, labor-intensive industries such as textiles have actually slumped and caused waves of layoffs.

In addition, productivity remains a major issue. With the declining contribution of manufacturing, Indonesia risks being trapped in commodity-based growth that is vulnerable to global fluctuations. Experts emphasize the importance of structural reform and increasing the industry's competitiveness.

Future prospects

In the short term, the Indonesian stock market will still be influenced by domestic political dynamics. Government stability is an important factor for investor confidence. However, as long as the economy's fundamentals remain strong with growth above 5 percent, the market is expected to hold up.

The government also needs to maintain fiscal credibility and strengthen industrial policy so that growth is more sustainable. An increase in the trade surplus and positive investment inflows can be a strong capital base, provided that it is accompanied by inclusive policies.

Indonesia's economy is currently at a crossroads. Positive growth and rising investment have become signals of hope. However, pressures in the manufacturing sector, political turmoil, and inflation that has the potential to rise serve as a reminder that stability must be maintained.

For readers who want to gain a deeper understanding of the political impact on global stock markets, please read the related article on Insimen that discusses how Asia's financial markets are facing geopolitical uncertainty.