The 2025 economic outlook for Indonesia is not optimistic. The OECD expects Indonesia's economy to grow by only 4.9%, far below the government's vision of 6-8%. The International Monetary Fund (IMF) October report projected growth of 4.9%, an upward revision of 0.1%. Indonesia's central bank forecasts growth between 4.6% and 5.4%, while the government targets 5.2%, higher than the World Bank's (WB) 4.8%.
On a quarterly basis, Indonesia's economy grew 4.87% in Q1, rose to 5.12% in Q2, then slowed to 5.04% in Q3, below the economists' expectation of 5.0%, due to investment growth falling from 6.99% in Q2 to 5.04% in Q3, and the investment-to-GDP ratio was only 31.48%, with an Incremental Capital-Output Ratio (ICOR) of 6.245.
Compared to other countries, Indonesia has a relatively high ICOR, indicating low economic efficiency. For example, the ICORs of Vietnam, Thailand, Malaysia, and India are 4.6%, 4.4%, 4.5%, and 4.5%, respectively. India's investment-to-GDP ratio is similar to Indonesia's, but its economic growth is higher. India plans to reduce its ICOR to 2.7 by 2030, while Indonesia would need an investment-to-GDP ratio of 49.96% to achieve 8% growth.
To reach the 6-8% growth target, the government needs to improve economic efficiency and lower the ICOR to 5-6; promote technological innovation and increase digital transformation coverage; improve the ease of doing business and carry out institutional reforms; adopt the latest digital technologies; and identify leading manufacturing enterprises to concentrate resources on enhancing their efficiency.
The 2025 economic outlook for Indonesia is not optimistic. The OECD expects Indonesia's economy to grow by only 4.9%, far below the government's vision of 6-8%. The International Monetary Fund (IMF) October report projected growth of 4.9%, an upward revision of 0.1%. Indonesia's central bank forecasts growth between 4.6% and 5.4%, while the government targets 5.2%, higher than the World Bank's (WB) 4.8%.
On a quarterly basis, Indonesia's economy grew 4.87% in Q1, rose to 5.12% in Q2, then slowed to 5.04% in Q3, below the economists' expectation of 5.0%, due to investment growth falling from 6.99% in Q2 to 5.04% in Q3, and the investment-to-GDP ratio was only 31.48%, with an Incremental Capital-Output Ratio (ICOR) of 6.245.
Compared to other countries, Indonesia has a relatively high ICOR, indicating low economic efficiency. For example, the ICORs of Vietnam, Thailand, Malaysia, and India are 4.6%, 4.4%, 4.5%, and 4.5%, respectively. India's investment-to-GDP ratio is similar to Indonesia's, but its economic growth is higher. India plans to reduce its ICOR to 2.7 by 2030, while Indonesia would need an investment-to-GDP ratio of 49.96% to achieve 8% growth.
To reach the 6-8% growth target, the government needs to improve economic efficiency and lower the ICOR to 5-6; promote technological innovation and increase digital transformation coverage; improve the ease of doing business and carry out institutional reforms; adopt the latest digital technologies; and identify leading manufacturing enterprises to concentrate resources on enhancing their efficiency.