INDEF Warns of Market Volatility Risks to Indonesia’s Growth

Jakartaweekly.com— A public discussion hosted by the Institute for Development of Economics and Finance (INDEF) titled “Growth Amid Stock Market Volatility” highlighted Indonesia’s economic conditions, which continue to expand at a moderate pace of 5.11% year-on-year while facing significant pressure from financial market volatility, weakening purchasing power, and unresolved structural issues.

Speakers noted that maintaining macroeconomic stability and improving the quality of economic growth are critical challenges amid both global and domestic uncertainty.

Eko Listiyanto, Director of Big Data Development at INDEF, emphasized the strategic role of capital markets as a short-term driver of growth and a key indicator of economic confidence.

According to big data analysis of public conversations on the X platform, 41,782 discussions between January 26 and 31, 2026 mentioned the Indonesia Stock Exchange, the President, and the Financial Services Authority. The conversations reflected growing public attention and concern over the weakening composite stock index and the depreciation of the rupiah.

“This situation underscores the importance of strengthening the stock market to maintain optimism and investor confidence,” Eko said.

He also pointed to Indonesia’s 2025 economic growth, which fell short of the state budget target of 5.2%, as an early warning sign for policymakers.

From the expenditure side, household consumption grew by only around 0.14% year-on-year, significantly below pre-pandemic trends, indicating pressure on consumer purchasing power. The Ramadan and Eid holiday season in the first quarter of 2026 could provide momentum for economic activity, but it would require inflation stabilization, a stronger rupiah, and measured fiscal support.

Meanwhile, Ahmad Heri Firdaus, a researcher at INDEF’s Center of Industry, Trade, and Investment, said the quality of Indonesia’s economic growth remains weak and heavily dependent on government stimulus.

Growth has stagnated around the 5% range and has yet to reflect strong structural transformation. Household consumption remains subdued, while economic expansion is largely driven by exports and non-profit institutions serving households.

Although the agriculture and manufacturing sectors recorded growth, their impact on productivity, value creation, and job absorption remains limited.

Heri also highlighted the weak impact of economic growth on job creation, especially as Indonesia’s labor force increases by 3–4 million people annually.

Indonesia’s Incremental Capital Output Ratio (ICOR), currently around 6.33, indicates low investment efficiency, which could hamper medium-term growth acceleration unless structural reforms and improvements in investment quality are implemented.

Riza A. Pujarama, a researcher at INDEF’s Center of Macroeconomics and Finance, also outlined rising fiscal pressures in 2025.

Government revenue and expenditure fell short of targets, widening the fiscal deficit to 2.92% of GDP—close to the statutory ceiling of 3%. Meanwhile, the government debt ratio reached around 40.04% of GDP.

At the same time, Indonesia’s tax ratio declined to 9.31%, creating a major challenge for achieving the 2026 target of 10.47%.

Riza stressed the importance of fiscal prudence through improved quality of government spending, strengthening the tax base without undermining purchasing power, and creating a more predictable business climate.

“Fiscal discipline and realistic macroeconomic assumptions are essential to maintaining economic stability and sustaining Indonesia’s growth in the coming years,” he said.