Unlock Editor’s Digest Lock for Free
FT editor Roula Khalaf will select your favorite stories in this weekly newsletter.
Indonesia’s major stock index fell 7% on Tuesday as concerns are growing over the weakening of consumer spending in Southeast Asia’s largest economy and President Prabowoboyant’s costly spending plans.
The Jakarta Composite Index has dropped by 7.1% to reach its lowest level since 2021. After the index fell 5%, the stock exchange temporarily halted trading, but fell even further when trading resumed.
The index has been sliding about 14.2% this year, making it one of the worst performances worldwide. Rupiah also fell by about 2% this year.
Investors are surprised at the slower consumption in Indonesia. This has led to a decline in purchasing power and consumer confidence over the last few months. Last week, central bank data showed that consumer confidence had declined for the second consecutive month in February.
Indonesia’s middle class is under pressure from a lack of proper formal employment and a decline in the manufacturing sector.
In January, Bank Indonesia unexpectedly reduced interest rates to drive growth despite weakening of the rupiah. We also reduced our full-year growth forecast to range from previous estimates of 4.8-5.6% to 4.7-5.5%.
The central bank is holding a monetary policy meeting this week and is expected to announce its interest rate decisions on Wednesday.
Since taking power in October, Prabowo has launched a nationwide free meal program for school children and pregnant women. This is a policy that is expected to cost $28 billion a year.
The plan put a strain on already-growing finances, struck sectors including infrastructure, and urged widespread austerity measures.
Local media suggest that Finance Minister Sri Muryani Indrawati, who has served in the position for nearly nine years, could soon resign. The government denied these reports.
“While the deployment of government social aid may ease consumption power, the recovery in consumption is considered to be weaker than previously expected,” Maybank economist Brian Lee said in a research note on Tuesday.
“The economic uncertainty and growing work concerns that have continued from China’s competition are heavy on spending appetite,” he said.
Maybank cuts Indonesia’s 2025 growth forecast from 5.2% to 5%, with the central bank expecting a 25 basis point cut this week.
As resource-rich Indonesia focuses on the commodity sector, manufacturing as a contributor to GDP has steadily declined over the past 20 years, with several factories suffering from flooding of cheap goods from China in recent months.
Sritex, one of Indonesia’s largest textile companies, has fired more than 10,000 employees this month after closing its business and declared bankrupt.
Additional Reports by William Sandland of Hong Kong
