Economic Slowdown in Q1-2025 Overshadowed by Increasing Unemployment

JAKARTA, KOMPAS - The stagnation in household consumption growth has caused Indonesia's economic growth in the first quarter of 2025 to slow down compared to the growth in the first quarter of 2024. This slowdown is also overshadowed by an increase in the number of unemployed individuals, which increasingly threatens the weakening of public consumption.

The Central Statistics Agency (BPS) recorded Indonesia's annual economic growth in the first quarter of 2025 at 4.87 percent. This growth is lower compared to the annual economic growth in the first quarter of 2024, which reached 5.11 percent.

According to records from BPS, Indonesia's economy based on gross domestic product (GDP) in the first quarter of 2025 at current prices is Rp 5,665.9 trillion. Meanwhile, the GDP at constant prices is Rp 3,264.5 trillion.

In a hybrid press conference held on Monday (5/5/2025), Head of BPS Amalia Adininggar Widyasanti stated that the economic growth in the first quarter of 2025 was supported by the growth of household consumption and exports, which grew annually by 4.89 percent and 6.78 percent, respectively.

"The component of expenditure that has grown significantly is exports, driven by the increase in the value of non-oil and gas exports and the influx of foreign tourists. Additionally, household consumption has grown, propelled by the moment of Ramadan and the Eid al-Fitr holiday at the end of March 2025," he stated.

The slowdown in economic growth in the first quarter of 2025 is in line with the stagnation in household consumption growth in the first quarter of 2025 compared to household consumption growth in the first quarter of 2024.

BPS recorded that household consumption in the first quarter of 2025 grew by 4.89 percent year-on-year. Meanwhile, in the first quarter of 2024, the year-on-year growth of household consumption was recorded slightly higher at 4.91 percent.

Historically, household consumption has indeed been the mainstay of Indonesia's economic growth. Household consumption generally contributes a large proportion to the GDP, ranging from 53-56 percent. Specifically, in the first quarter of 2025, household consumption contributed a proportion to the GDP reaching 54.53 percent.

Contacted separately, the Chief Economist of PT Bank Permata Tbk, Josua Pardede, assessed that the increase in household consumption is always correlated with economic growth. If there is a slowdown or stagnation in household consumption growth, then overall economic growth will experience a slowdown.

The slowdown in consumer performance, he continued, had previously been indicated by the results of the Bank Indonesia Consumer Survey in March 2025, which showed a weakening of the income index and the purchase of durable goods, particularly from the lower middle-income group. "This condition indicates pressure on purchasing power," he stated.

Stagnation in consumer spending growth is somewhat influenced by the annual growth of government spending, which contracted by 1.38 percent in the first quarter of 2025. This condition is in stark contrast to the growth of government spending in the first quarter of 2024, which surged by 20.44 percent year-on-year.

According to Josua, the contraction in government spending is reflected in the realization of the State Revenue and Expenditure Budget (APBN) until March 2025, which reached 17.1 percent of the annual spending ceiling.

"The relatively low absorption of state spending is also a factor contributing to the weakening of aggregate demand and public sector activity, although the government recorded a primary balance surplus of Rp 17.5 trillion," said Josua.

The only engine strong enough is the growth of goods and services exports, which increased by 6.78 percent year-on-year in the first quarter of 2025. Josua observed that the robust growth of exports is supported by downstream processing and value-added manufacturing exports.

The sluggish consumption of the public is increasingly burdened by the looming shadow of rising unemployment. The Central Statistics Agency (BPS) recorded an increase in Indonesia's unemployment rate by 83,000 individuals compared to February 2024, reaching 7.28 million people in February 2025.

"Not all of the workforce is absorbed in the job market, resulting in a number of unemployed individuals amounting to 7.28 million," said Amalia.

In general, the working-age population of Indonesia in February 2025 reached 216.79 million people, an increase of 2.79 million people compared to the previous year. Of this number, 153.05 million people fall into the category of the labor force, which is an increase of 3.67 million people from February 2024.

The number of employed individuals reached 145.77 million, an increase of 3.59 million from the same period the previous year. Specifically, full-time workers rose to 96.48 million (an increase of 3.21 million), part-time workers reached 37.62 million (an increase of 820,000), and underemployed individuals decreased to 11.67 million (a reduction of 440,000).

An economist from the Department of Economics at Andalas University, Syafruddin Karimi, added that the surge in the workforce, which is not fully matched by the absorption of labor, has led to an increase in the number of unemployed during that period.

He added that the increasing number of unemployed due to the surge in layoffs is certain to add pressure on the economy. This is because the purchasing power of the community will weaken and slow down domestic consumption, which is the main engine of economic growth.

The slowing purchasing power will also result in companies struggling to sell their products and services, which ultimately could lead to a larger wave of layoffs.

According to him, the government must allocate more budget for social assistance, which could widen the state budget deficit and increase the national debt burden. As unemployment rises, security stability is also at risk of being disrupted as more people lose their sources of income.

The stagnation in consumer spending growth is somewhat influenced by the annual growth of government spending, which contracted by 1.38 percent in the first quarter of 2025.

"Social instability will become increasingly apparent if the middle class, which is threatened with descending to the lower class, begins to lose access to education, health, and future investments," he stated.

Previously, Finance Minister Sri Mulyani Indrawati stated that national economic growth this year is expected to remain in the range of 5 percent. This statement was made during a press conference following the periodic meeting of the Financial System Stability Committee (KSSK) II of 2025.

The International Monetary Fund (IMF) in its April 2025 edition of the World Economic Outlook has revised Indonesia's economic growth projection to 4.7 percent, down from the previous prediction of 5.1 percent. This correction is made in line with the increasing tensions of the trade war due to the reciprocal tariff policies of the United States.