Indonesia is currently facing mounting economic pressure in 2025 as declining consumer purchasing power begins to impact overall national growth. While various sectors are feeling the effects, gold prices are showing an upward trend, becoming a favored safe-haven asset amid ongoing uncertainties.
Purchasing Power Takes a Hit
Indonesia’s economic growth slowed in Q1 2025, registering at just 5.03% year-on-year—lower than the same period in the previous year. One of the main contributors is a wave of layoffs, with over 18,000 workers losing their jobs in just the first two months. According to the Indonesian Trade Union Confederation (KSPI), around 60,000 workers across dozens of companies have been affected.
Consumer confidence, typically higher at the start of the year, has also declined. This is reflected in a drop in the Consumer Confidence Index and weakened real sales, indicating lower household consumption.
"January usually shows rising optimism, but this year is different. Consumer purchasing power has clearly weakened," said Nailul Huda, Director of Economics at CELIOS.
Government policy to raise the Value Added Tax (VAT) from 11% to 12%, along with plans to limit fuel subsidies, could further burden middle-income households—historically the key drivers of consumer spending in Indonesia.
"These policies risk reducing the spending power of the middle class, which contributes significantly to our economy," explained Mohammad Faisal, Executive Director of CORE Indonesia.
Gold Price Movements
In contrast to the weakening rupiah and slowing economy, gold prices have continued to climb. Octa broker analyst Kar Yong Ang believes that gold will remain a solid investment through 2025, even with potential short-term price corrections.
"Gold remains an attractive asset, though we might see a temporary dip in prices in the near future," Kar Yong Ang noted.
Gold is expected to trade between USD 2,500 to USD 3,000 per ounce, influenced by interest rate decisions by the Federal Reserve and inflation outlooks. Geopolitical tensions and possible rate cuts are also playing a significant role in gold market sentiment.
Locally, gold prices are projected to remain above IDR 1.5 million per gram. However, fluctuations in the rupiah and global economic shifts could bring prices down to around IDR 1.38–1.39 million per gram temporarily.
Government’s Response to the Economic Strain
In response to the economic challenges, the Indonesian government is preparing a stimulus package set to launch in June 2025. The package includes a 50% discount on electricity bills for millions of households, food assistance for low-income families, and cash support for low-wage workers.
To stimulate broader economic activity, the government is also targeting the tourism sector by offering discounts on transportation and toll roads during holiday seasons.
"This stimulus aims to revive growth by boosting household spending," said Coordinating Minister for Economic Affairs, Airlangga Hartarto.
These measures are expected to help Indonesia weather current economic headwinds and lay the groundwork for a more stable recovery and sustainable future growth.
إِنَّمَا الْأَعْمَالُ بِالنِّيَّاتِ، وَإِنَّمَا لِكُلِّ امْرِئٍ مَا نَوَى
Artinya: “Sesungguhnya segala amal tergantung niatnya, dan setiap orang akan mendapatkan sesuai dengan apa yang diniatkan.”
[HR. Bukhari dan Muslim]
