JAKARTA: Economists forecast that Indonesia’s gross domestic product (GDP) growth will fall below 5% this year, thanks to a domestic consumption slowdown and global turbulence dragging down investment.

State-owned lender Bank Mandiri macro and financial market research head Dian Ayu Yustina said on Monday that it projected the country’s economy would grow by 4.93% year-on-year (y-o-y) this year, lower than last year’s 5.02%.

The estimate is based on decreased first-quarter (1Q25) growth of 4.87% y-o-y because of lower household consumption, which only reached 4.89% y-o-y, and government consumption, which contracted by 1.38% y-o-y.

“Admittedly, there’s an effect from normalisation because of the general election in the 1Q24.

“Household consumption during the election increased and subsequently we see the base effect this year,” Dian said.

She said that the household consumption growth in the 1Q25 was “stable” thanks to the Aidilfitri festive season, when people normally spend more.

Dian said that GDP growth in the 2Q25 would likely be higher, thanks to the boost from government consumption, which contracted in the first three months of this year because of the budget reallocation policy, which temporarily restricted state spending.

The projection for the 2Q25 growth was 4.92% y-o-y, but Dian noted that it might reach a faster tick if the central bank and government loosen monetary and fiscal policies.

Dian predicted that Bank Indonesia (BI) would cut its benchmark rate by 25 basis points this week, which is to be announced after the central bank’s monthly board of governors meeting scheduled for yesterday and today.

Private lender Bank Permata also projected slower GDP growth this year, in the range of 4.5% to 5% with a centre estimate of 4.78%, which was down from its previous projection of 5.11% y-o-y.

The private lender’s chief economist, Josua Pardede, said on May 14 that the sub-5% growth would persist until next year and “would only rebound” to above 5% in 2027.

The estimates have taken global risk factors into consideration, particularly regarding the matter of the trade war between the United States and China that brought up uncertainties, which have deterred foreign investment as businesses hold back expansion plans until the dust settles.

He recommended that the government undertake counter-cyclical, expansionary financial measures to boost consumption and lift overall growth.

“Even though the impact of government spending on the overall GDP or its share of the economy is not big, we can imagine how big its multiplier effects on consumption and investment are,” Josua said.

Domestically, Bank Permata said household consumption would remain under pressure this year.

It also stressed the importance that the government maintain prudent financial management.

President Prabowo Subianto’s administration has a full-year GDP growth target of 5.2% for 2025, and the president hopes to achieve a rate of 8% by the end of his term. — The Jakarta Post/ANN