A number of economists have several projected scenarios for Indonesia's economic growth in 2025 amidst the escalating tariff war initiated by United States (US) President Donald Trump's import tariff policy.

The Prabowo Subianto administration is targeting economic growth of 5.2% this year. Meanwhile, Bank Indonesia (BI) estimates economic growth in the range of 4.7%-5.5% in 2025.

Economists say that Indonesia's economic growth projections for 2025 will be influenced, among other things, by the outcome of tariff negotiations between the Indonesian and US governments over the next 60 days.

Muhammad Rizal Taufikurahman, Head of Macroeconomics and Finance at Indef, stated that if trade tariffs between Indonesia and the US were reduced to 0%, this would be a breath of fresh air for Indonesian exports. Superior products such as textiles, furniture, and electronic components would gain significantly stronger price competitiveness in the US market.

As a result, local exporters will be encouraged to increase production capacity and investment, creating a multiplier effect on employment and national income. However, Rizal stated that maximum benefits will only be achieved if industrial and infrastructure policies support export sector expansion by simultaneously increasing foreign exchange and added value.

"From a macro perspective, this condition will strengthen the trade balance and could become a driver of economic growth. Assuming other variables remain stable, such as domestic consumption and continued investment growth, national economic growth has the potential to rise this year, above 5.0%," Rizal told Kontan on Monday (April 21).

On the other hand, if negotiations fail and high tariffs are imposed totaling 30% plus 10%, the impact on Indonesia's export performance will be very severe.

Many industrial players, especially those dependent on the US market, will experience a drastic drop in demand. This has the potential to reduce factory utilization, worsen corporate cash flow, and trigger a wave of layoffs in labor-intensive sectors.

As a result, Rizal stated, the macroeconomic impact would be a weakening of exports, a key component of GDP. Furthermore, pressure on the rupiah and the current account could increase due to the trade deficit.

"In this scenario, Indonesia's economic growth will likely be corrected to below 5.0%. Without expansionary fiscal and monetary policies and an aggressive market diversification strategy, these pressures could deepen," Rizal explained.

On the other hand, JP Morgan projects that Trump will impose an average tariff of 20% on countries negotiating with the US. Therefore, if that scenario occurs, Rizal estimates that the tariff burden will remain, reducing the price competitiveness of Indonesian products in the US market.

"Under these conditions, Indonesia's exports will remain under pressure, although not to an extreme degree. National economic growth will likely remain around 5.0%, slightly lower than the baseline," Rizal said.

Furthermore, according to Rizal, to mitigate this impact, Indonesia needs to accelerate export market diversification, strengthen regional trade cooperation, and provide incentives for industries to move up the global value chain.

Meanwhile, Fithra Faisal Hastiadi, Chief Economist at Samuel Sekuritas Indonesia, said it would be quite difficult to achieve the government's economic growth target of 5.2% by 2025.

"Indonesia's current challenge is global demand, which will ultimately impact domestic economic growth. Projected economic growth this year will be around 4.8%," he told Kontan.

On the other hand, the current domestic situation is also worrying, not only due to deflation in February but also to the decline in the consumer confidence index for three consecutive months. From 127.2 in January, it dropped to 126.4 in February, and even further down significantly to 121.1 in March.

While consumer confidence should have peaked in February and March due to the Ramadan and Eid al-Fitr holidays, it has instead plummeted, perhaps because people perceive the current economic conditions as unfavorable, and are therefore curbing consumption to survive the coming months.

"The government needs to provide stimulus that directly impacts disposable income," said Fithrah.

Source: Kontan