Impact of Layoffs and Budget Efficiency, Economy Could Slow Down Early in the Year

JAKARTA, KOMPAS – Indonesia's economy at the beginning of 2025 is predicted to grow at a slower pace. Despite the factors of Eid celebrations and the injection of economic stimulus, growth has the potential to be hindered amidst a series of layoffs and a decline in government spending due to budget efficiency policies.

As a comparison, last year, the Indonesian economy in the first quarter of 2024 was able to grow quite high at 5.11 percent annually (year on year).

The economic condition at that time was boosted by several moments, including the general election (pemilu) held in February 2024, Ramadan, which began in mid-March 2024, and preparations ahead of the Eid al-Fitr celebration.

Last year, government consumption and the consumption of non-profit institutions serving households (NPISH) grew drastically, reaching double digits. Government consumption grew by 19.9 percent year-on-year, while NPISH consumption increased by 24.29 percent due to election activities.

This year, the factors driving the economy will be fewer due to the absence of a political year momentum. The Executive Director of the Center of Reform on Economics (CORE) Indonesia, Mohammad Faisal, stated that economic growth at the beginning of this year will heavily rely on Ramadan and the early Eid period.

"Last year it was still leveraged by high government spending and LNPRT consumption. This year, both factors could be minus, not only because of the high-based effect (the growth base that was too high in the previous year), but also because there is a budget efficiency factor," said Faisal when contacted, Monday (3/3/2025).

Budget efficiency with a total value of Rp 308 trillion, carried out by all levels of the central and regional governments starting in February 2025, is expected to cause government consumption this year to contract or experience negative growth.

Although the contribution of government spending to the formation of the national gross domestic product (GDP) is small, namely below 10 percent, the impact of budget efficiency will still be reflected in overall economic growth.

Moreover, it is not only government consumption that is affected by the efficiency policy. A number of business sectors such as transportation, hotels and restaurants, and the organization of business and professional events (MICE), are also affected by budget cuts for official travel, organizing meetings, seminars, conferences, and others.

"If you look at the condition of the sources of economic growth at the beginning of the year, it could be that economic growth in the first quarter of this year is below 5 percent. The only thing that is still good is probably exports and imports," said Faisal.

The biggest factor that will boost economic growth is Eid al-Fitr and Nyepi which this year falls in the first quarter of 2025. Preparations for Eid will most likely drive public demand and consumption as the main contributors to the Indonesian economy.

"This holiday factor can help keep economic growth from dropping too far below 4.9 percent," he said.

Another thing that can boost the economy is the government's stimulus to maintain people's purchasing power. In order to encourage consumption in the first quarter of 2025, the government has prepared various economic stimuli and incentives.

Among others, a 50 percent electricity tariff discount in January-February and the distribution of social assistance. In addition, special stimulus packages for Ramadan and Eid such as discounts on airline tickets on March 25-April 7, 2025, discounts on toll rates for long-distance travel during the homecoming period, and shopping discounts during the Ramadan and Eid periods.

However, researcher at the Institute for Economic and Community Research, Faculty of Economics and Business, University of Indonesia (LPEM FEB UI) Teuku Riefky suspects that the impact in driving the economy at the beginning of the year will not be too significant. Because, at the same time the government also issued a number of contradictory policies.

For example, the budget efficiency policy that has currently had an impact on several sectors. "Indeed, there is a shopping stimulus, discounts on airline fares, discounts on toll fares, all of which have a positive impact. However, on the other hand, there are also government policies that are counterproductive and actually hinder growth," said Riefky.

The early year economy will also be affected by the wave of layoffs that have occurred in several industries before Lebaran. Recently, PT Sri Rejeki Isman Tbk or Sritex Group was decided to no longer be able to operate and had to lay off 12,000 employees.

Previously, several labor-intensive industries in West Java also closed their operations, such as PT Sanken Indonesia, PT Yamaha Music Product Asia, PT Tokai Kagu, PT Danbi Internasional, and PT Bapintri. As a result, hundreds to thousands of employees were laid off in each of these companies.

"This wave of layoffs will certainly have an impact on economic growth. Moreover, those who lose their jobs are not only in labor-intensive industries, but also other sectors due to government spending efficiency," said Faisal.

Coordinating Minister for Economic Affairs Airlangga Hartarto said the government will ensure the implementation of strategic policies from the distribution of social assistance to special stimulus for the Ramadan and Eid period. The hope is that these policies can encourage the achievement of the 5.2 percent economic growth target according to the 2025 State Budget.

"These policies are designed to maintain the momentum of economic growth and ensure macroeconomic stability. The government will continue to monitor the development of individual consumption activities and increased community mobility during Nyepi and Eid al-Fitr holidays that will drive economic activity," he said.