Economists Lavanya Venkateswaran and Ahmad A Enver of OCBC Global Markets Research (OCBC) have kept their 2025 gross domestic product (GDP) growth forecast of 4.7% for Indonesia despite the recent series of protests across the nation’s capital and other key cities.
The protests peaked on Aug 25 in Jakarta following President Prabowo Subianto’s announcement of increasing Indonesian lawmakers’ monthly allowance to INR50 million ($3,913) among other perks.
The amount, widely reported to be some 10 times the minimum wage in Jakarta, was met with initial discontent on social media before escalating to full-fledged protests on the streets.
While the housing allowance has been in place since October 2024, the public outrage it generated led to an escalation in street protests last week, coinciding with planned protests from labour unions on Aug 28 demanding a 10% rise in minimum wage among other demands.
Earlier on Aug 13, a wave of demonstrations had erupted in the Central Java town of Pati, when the local regent had proposed a 250% hike in the rural and urban land and building tax.
February and March had also seen student protests to budget cuts seen as hurting education and teacher allowances, as well as objections to the expansion of military roles in civilian posts.
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Venkateswaran and Enver write: “President Prabowo addressed the nation on Aug 31, stating that the parliament will revoke the housing allowances of IDR50 million/month that are provided to parliamentarians, with a moratorium on trips abroad. He added that errant lawmakers could lose their seats.”
Alongside this, Prabowo issued a warning of “firm action” by the police and military should protestor activities become illegal, while cancelling his planned trip to China for the Shanghai Cooperation Organization Summit.
The economists note that although protest activity on the night of Aug 31 was limited and the situation had stabilised to an “uneasy calm”, sentiment will likely “remain skittish” in the near-term as clearer solutions to the underlying causes stoking the protests remain open-ended.
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While the Indonesian government has since revoked the housing allowances for parliamentarians, Venkateswaran and Enver note that wage negotiations will be ongoing for some months, with the minimum wage hikes for 2025 decided in late November last year.
Additionally, budget discussions are still underway in the House of Representatives.
They write: “Recently, we have observed an increase in protestor activities and with the political calendar fairly heavy for the rest of the year, we cannot close the door on further protests if the authorities and the negotiating parties do not see eye to eye.”
Implications
Overall, the economists see that the implications for Indonesia’s economic activity are “less clear-cut” given that the street protests are “unlikely to change” the broader direction of policy.
“Fiscal policies undertaken by the Prabowo administration have been in the spotlight because they are markedly different compared to his predecessor, Joko Widodo. In addition, some stress from job losses have also come to the fore since early 2025,” write the pair.
Although Venkateswaran and Enver note that the nation’s fiscal deficit will likely remain below the 3% of its GDP legal ceiling, the 2025 fiscal deficit was widened to 2.78% of GDP, from the budgeted deficit of 2.48% of GDP.
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They write: “The cutbacks in transfers to region and other government expenditures, the focus on social spending through the free meal scheme and limited clarity of revenue policies have, however, changed the underlying dynamics of the fiscal deficit.”
Despite this, Venkateswaran and Enver see that the focus on pushing capital expenditures has remained, with capex rising 17.9% y-o-y in the 1H2025 from 17.3% in 2024. “The public dissatisfaction evidenced by street protests could initiate a re-assessment of fiscal policies, however, the nature and extent of this reassessment (if any) remains to be seen,” they add.
The broader sentiment around household spending also remains under pressure.
While household spending growth was unchanged at 5% in the 2Q2025, the economists find that recent readings on consumer confidence, cement sales and credit growth have been subdued. In the textile sector particularly, anecdotal evidence of job losses has also added to pressure with the pickup in food inflation in July suggesting that households could face higher costs in the coming months.
“These could also complicate negotiations with regards to minimum wage discussions. On the external front, our calculations suggest that Indonesia’s effective tariff rate at 24.5% is the highest in the region for exports to the US,” write Venkateswaran and Enver.
This, they note, implies that the hit from tariffs will likely start to show up as early as August’s data.
With their keeping of the full-year GDP forecast of 4.7%, this also assumes a sharper slowdown to 4.5% in the 2H2025 from 5.0% in 1H25, reflecting a collision of external and domestic factors.
At the same time, Bank Indonesia (BI) has lowered its policy rate by a cumulative 100 basis points (bps) so far in 2025. On this, Venkateswaran and Enver have another 25 bps in rate cuts pencilled into their forecasts, likely in the late 4Q2025.
“BI will remain vigilant of skittish sentiment and portfolio outflow risks in the near-term. Indeed, BI noted last week that it remains present, with interventions in the foreign exchange (forex) spot, bond, domestic and offshore non-deliverable forward (NDF) markets,” conclude the pair.
