Indonesia's Investment Outlook for 2025 Remains Challenging

Economic Experts Call for Urgent Reforms

Indonesia's investment landscape is facing headwinds in 2025, with economic experts warning that without significant government intervention, foreign direct investment (FDI) may slow further. Cyrille Schwellnus, Head of Indonesia and Philippines Desk, highlighted that while the overall economy remains stable with strong household consumption and recovering government spending, investment indicators tell a different story.

Key Challenges and Recommendations

The economic outlook is characterized by mixed signals: on one hand, domestic consumption remains robust supported by stable consumer spending; government expenditure has also rebounded after being temporarily reduced in the first half of 2025 to finance priority projects such as the nutritious meal program (MBG) and the establishment of Danantara. However, business behavior has shifted significantly, with companies adopting a more cautious approach amid uncertainty.

Inventory Reduction Signals Caution

A significant reduction in inventory was observed in Q3 2025, which Schwellnus described as a 'conservative move' by businesses reassessing market conditions. This inventory adjustment reflects broader investor sentiment and potential hesitation in committing to new investments. Experts are urging the government to implement proactive measures including deregulation and tax incentives to create a more competitive investment climate compared to neighboring countries.

Looking Ahead

The Indonesian government faces the challenge of balancing fiscal prudence with the need to stimulate investment. As the country navigates these economic complexities, the implementation of business-friendly policies will be crucial in determining whether investment momentum can be maintained or improved in 2025.