World Bank Raises Indonesia’s 2025 Growth Forecast to 4.8% on Fiscal Stimulus, Strong Consumption

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JAKARTA, Investortrust.id — The World Bank has raised its projection for Indonesia’s economic growth in 2025 to 4.8% year-on-year, reflecting stronger fiscal stimulus and household spending momentum, according to its East Asia Pacific Economic Update released in October 2025.

The new projection represents a 0.1 percentage point upward revision from April 2025, when the World Bank expected Indonesia’s economy to expand by 4.7%. Growth for 2026 is maintained at 4.8%.

The institution said the revision reflects the Indonesian government’s fiscal stimulus targeting food, transport, and energy sectors, combined with social assistance programs designed to bolster household demand. Household consumption is projected to contribute around 54% of total GDP growth between 2025 and 2027.

“The fiscal stimulus directed at food, transportation, and energy sectors, combined with social assistance programs, is expected to support household consumption and sustain domestic demand,” the World Bank said in its report on Wednesday, Oct 8, 2025.

Investment growth is also expected to strengthen gradually, averaging 6.2% annually between 2025 and 2027. The World Bank attributed this to initiatives such as the Danantara Sovereign Wealth Fund, monetary easing, and rising foreign direct investment in downstream industries, deregulation, and special economic zones.

“The projected increase in domestic demand is likely to offset weaker net exports, amid worsening terms of trade due to China’s economic slowdown, falling commodity prices, and continued global trade uncertainty,” the report said.

However, the World Bank cautioned that implementation risks remain, noting that the direction and efficiency of government spending could determine the magnitude of short-term benefits.

“Government subsidies targeting food, transport, and energy sectors, as well as state-directed investment, may provide short-term growth support but do not necessarily promote long-term productivity,” the institution noted.

The report also highlighted widening fiscal pressures. Indonesia’s budget deficit increased in the first half of 2025 as spending outpaced declining revenues.

“The government projects higher total spending and a wider structural deficit in 2025, focusing again on subsidies for food, transport, and energy sectors, and on state-directed investments,” the report stated.

On the labor front, the World Bank underscored that Indonesia has made limited progress in structural transformation compared to regional peers.

“In Indonesia, the share of employment in manufacturing has remained nearly unchanged over the past three decades,” the report observed.

It added that easing labor mobility barriers within the country could boost worker productivity and income by up to 20%.

The World Bank also noted that domestic policy uncertainty and political factors could weigh on investment sentiment and household consumption.

Echoing the World Bank’s view, Bank Mandiri Chief Economist Andry Asmoro said Indonesia’s economy is likely to strengthen over the coming quarters, supported by a mix of fiscal expansion and monetary easing.

The Finance Ministry’s placement of Rp 200 trillion in banking system liquidity, together with five consecutive interest rate cuts by Bank Indonesia, is expected to fuel credit growth and household spending.

“This will provide a boost to household expenditure and investment activity, particularly in the fourth quarter of 2025,” Andry said.

He maintained Bank Mandiri’s forecast for 5% economic growth in 2025 and 5.2% in 2026, citing continued accommodative policy transmission and a sustained rebound in domestic demand.