Indonesia launches $1.5 billion stimulus to counter slowing economic growth

Indonesia has unveiled a $1.5 billion stimulus package aimed at boosting household spending and propping up economic growth, as concerns mount over weakening momentum in Southeast Asia’s largest economy.

The measures, rolled out on June 5, are designed to support consumption during the school holiday period, amid softening commodity prices, global trade tensions, and domestic policy shifts, Caliber.Az reports, referring to foreign media.

The stimulus package, valued at 24.44 trillion rupiah ($1.5 billion), includes transportation fare discounts, wage subsidies for millions of households for two months, toll road reductions, and increased social aid for the most vulnerable citizens. Finance Minister Sri Mulyani Indrawati said the initiative is intended to stimulate travel and lift consumption, expressing hope that growth in the second quarter would remain close to 5 per cent.

However, maintaining that growth target is proving increasingly difficult. Indonesia’s economy grew just 4.9 per cent in the first quarter of 2025, marking the slowest quarterly pace in over three years. This has raised doubts about Jakarta’s ability to sustain the 5 per cent growth rate that it has generally maintained over the past decade, excluding the pandemic period.

Indonesia’s export-reliant economy—driven by nickel, coal, palm oil, and other key commodities—is under pressure from shifting global dynamics. A 32 per cent tariff imposed by US President Donald Trump has added to trade-related uncertainty, although enforcement of the tariff has been suspended until July. Jakarta is currently in talks with Washington to negotiate a reduction in tariffs and has pledged to buy more American goods in an effort to narrow its trade surplus with the US.

On the domestic front, indicators such as retail and vehicle sales point to a broad economic slowdown. This trend poses a challenge for President Prabowo Subianto, who aims to raise Indonesia’s annual growth to 8 per cent.

Government expenditure on infrastructure has been cut back, with funds reallocated to Prabowo’s signature free meals program, a massive initiative projected to cost $28 billion annually. The program, launched in January, is expected to become one of the world’s largest once fully implemented, delivering daily meals to over 82 million schoolchildren and pregnant women.

Prabowo believes the program, along with its associated kitchens and supply chains, will stimulate local economies and eventually create nationwide benefits.

Despite Prabowo’s optimism, Bank Indonesia has repeatedly trimmed its economic outlook for the year. The central bank’s most recent projection forecasts GDP growth of between 4.6 and 5.4 per cent. To support the economy, Bank Indonesia has already cut its benchmark interest rate by 50 basis points this year, bringing it to 5.5 per cent, and is expected to consider another rate cut in its June meeting.

However, analysts are sceptical that the current stimulus will be enough to reverse the downward trend. Bank of America projects GDP growth will decline further, to between 4.7 and 4.8 per cent in the second and third quarters.

Brian Lee Shun Rong, an economist at Maybank Investment Banking Group, said the stimulus will likely increase purchasing power for lower-income groups, but its broader impact on consumer demand will be limited. “Consumer sentiment remains fragile amid ongoing economic and labour market uncertainty, which could make households reluctant to loosen their purse strings,” he noted.

Lee added that more aggressive monetary and fiscal policies will be needed to halt the slowdown, especially as trade volumes are expected to decline in the second half of the year.

By Tamilla Hasanova