Indonesian Consumer Spending Slumps in Early 2025: Deflation, Layoffs, and Global Crisis Among Key Triggers

TEMPO.CO, Jakarta - A decline in consumer spending is evident in the deflation recorded at the start of 2025. While the government views deflation as a sign of successful price control, economists argue it reflects weak purchasing power.

Anton Agus Setyawan, a Professor of Management at Muhammadiyah University of Surakarta (UMS), emphasized the impact of this weakened purchasing power on the manufacturing sector. He said that pressure in this sector significantly contributes to rising unemployment.

"In early 2025, nearly 14,000 formal workers lost their jobs due to the decline in the manufacturing sector. This affects household income and ultimately leads to a decrease in public purchasing power," Anton explained in a statement published on the UMS.ac.id website on Wednesday, March 19, 2025.

According to him, reduced consumer spending also affects the trade and service sectors. This situation is compounded by ongoing global economic uncertainty following the COVID-19 pandemic, which continues to trigger economic, energy, and geopolitical crises.

He believes that government measures, such as electricity tariff cuts and planned toll road subsidies during the Eid al-Fitr holiday, are insufficient to address the economy's structural issues.

"More concrete steps are needed, such as expanding social assistance programs. For example, increasing the number of recipients of Direct Cash Assistance to ensure stable consumer purchasing power," he said.

Additionally, Anton suggested that the government provide grants to micro, small, and medium enterprises, and incentives for the manufacturing industry. These actions are believed to help stabilize the economy in the short term.

He also highlighted the importance of improving Indonesia's investment climate. Although certain policies exist, an unfavorable investment climate remains an obstacle to industrial performance. One necessary step is to improve economic efficiency by reducing illegal levies and corruption within the bureaucracy. He noted that the high Incremental Capital Output Ratio (ICOR), above 6%, indicates economic inefficiency.

"Reducing illegal levies and budget leaks will help lower economic costs. This is crucial for creating a more conducive investment climate and increasing the competitiveness of Indonesia's industry," Anton concluded.

Meanwhile, Yudistira Hendra Permana, an Economist from the Department of Economics and Business at the Vocational School of Gadjah Mada University (UGM), predicted that weakened consumer purchasing power will continue to affect Indonesia's economy throughout 2025. This is due to the ongoing global crisis that has not fully recovered since the COVID-19 pandemic.

"The global condition faces crises such as economic, energy, and geopolitical crises. Certainly, Indonesia, as part of the global economy, will be impacted by these factors, leading to economic pressures and weakened consumer purchasing power," Yudistira stated on the official UGM website.

He explained that in this situation, consumers tend to limit spending on both essential and non-essential items. Consequently, demand for goods and services weakens, potentially leading to further layoffs in the industrial sector.

Furthermore, Yudistira warned that consumer purchasing power during the fasting month and Eid this year is likely to differ from previous years.

"In my opinion, this year will see a slightly different consumption pattern. Consumers will tend to save their money until the end of the year," he explained.

In contrast, Josua Pardede, Chief Economist at PermataBank, stated that consumer purchasing power has been relatively stable since early 2025, despite pressures reflected in weakened tax revenue.

"The decrease in tax revenue, although partly due to technical tax policies such as overpayment claims from the implementation of the Average Effective Rate (TER) of Article 21 Income Tax, still requires monitoring as an early indicator of pressure on real public income," he said, as reported by Antara last Thursday.

However, Josua added that positive indicators, such as growth in industrial electricity consumption, positive motor vehicle sales, and Indonesia's manufacturing PMI (53.6 as of February 2025), indicate relatively robust domestic economic activity.

As of March 2025, he predicts that consumer purchasing power will temporarily increase due to seasonal factors like Ramadan and government stimulus, such as discounted toll rates and airline tickets, and the disbursement of holiday bonuses for civil servants and private sector employees starting in mid-March.

"Thus, throughout March 2025, consumer purchasing power is projected to improve compared to the beginning of the year, although it will still depend on the government's effectiveness in maintaining stable food prices and other essential goods," Josua said.

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