Building up Indonesian optimism

It has been a rough year for Indonesia under President Prabowo Subianto’s leadership. However, his risky policies seem to be paying off as homegrown businesses and franchising activity are booming.

President Prabowo Subianto’s economic policies have been described as aggressive and admittedly risky. According to Indonesia’s Minister of Finance, the first year of Subianto’s administration has been marked by economic optimism. However, critics view the policies as economic illusions which are proving to be hardly achievable.

November inflation stood at 2.72 per cent year-on-year, slightly easing from the previous month’s 2.86 per cent. The uncertainty surrounding the Federal Reserve and the prolonged US government shutdown that ended in November has also weakened the Indonesian rupiah against the US dollar. Economic growth also decelerated to 5.04 per cent in the third quarter, adding to concerns.

While Indonesia has been facing unexpected economic challenges, the optimism for economic expansion remains. The question is if Subianto’s leadership can transform this so-called illusion into reality.

Business, consumer optimism

According to government data, Indonesia’s population reached 285 million as of mid-year 2025, with about half or 146 million part of the working class. Given that the country has the largest population within ASEAN, one would typically equate this to as Indonesia enjoying labour as an abundant economic asset. These Indonesians workers support household expenditures, which is a key driver of overall GDP.

However, reality paints a different picture. Due to the concentration of the job market in the Java region, there persists an imbalance of job opportunities in the country. According to Bank Indonesia’s Consumer Expectation Survey, households view that labour market conditions had been unfavourable between May to September and tallied only a slight recovery in optimism in October. To address consumer concerns, Prabowo reaffirmed his dedication to improve the state of the labour market.

Graph 1 illustrates the general optimism of Indonesians regarding domestic job opportunities. While the current job availability index is net positive at 102.6, expectations for the next six months at a higher reading of 132 suggests that the labour market is stabilising, but still far from the more upbeat conditions in 2024. Nevertheless, survey data paint a sanguine outlook for Indonesia over the next six months, which stands encouraging.

There is also general optimism towards business conditions. On top of three million newly-created businesses, the first year of the Subianto administration also introduced enhancements to the business licensing system. These changes aim to make license approvals more efficient, providing greater ease of doing business for many entrepreneurs. As such, we see this will boost the confidence of both local and foreign corporates interested in doing business or expanding their operations in Indonesia – and, to an extent, in the ASEAN.

Boosting household spending

Indonesia’s Coordinating Minister of Economic Affairs, Airlangga Hartato, sees that the GDP growth target of 5.2 per cent is doable for 2025. In October, the Indonesian government announced a stimulus package which includes IDR 30 trillion (USD 1.8 billion) worth of cash handouts for 35 million households. To further stimulate consumer spending during the upcoming holidays – in part, to catch up with the full-year growth goal – the state plans to subsidize 6 per cent of the 11 per cent value-added tax on domestic airfares between 22 December until 10 January, particularly to promote local tourism.

Apart from the stimulus package, other indicators related to consumer spending also play an important role. According to S&P Global, Indonesia’s manufacturing Purchasing Managers’ Index rose for the second straight month to 53.3 in October 2025, indicating sustained expansions in output volumes, domestic sales, and employment.

Subianto’s first year as president saw an increase in household spending, as seen in Graph 2. While there has been a slight decrease during the July-September period from the previous quarter, household consumption remains strong and accounted for 54 per cent of national output. The second quarter for Indonesia is typically a time for religious festivals, which also translates to a seasonal spike in domestic consumer demand. If we examine the pattern over the past few years, the fourth quarter tallies the highest expenditure triggered by the increase in food and tourism expenditures over the holidays.

Despite the steady rise in consumer spending, the middle class has been reduced from 57 million people in 2019 to 48 million people in 2024, with the rest moving into the low-income brackets. This dampens economic growth prospects given that more Indonesians now have smaller disposable incomes. If Subianto wants to improve their situation – and in so doing, lift overall growth – it would do him well to implement policies to enhance the quality of life for the middle class and extend social assistance to low-income families.

Exploring new markets

An interesting market we see in Indonesia is the franchising industry. As of 2023, franchising was valued at approximately IDR 200 trillion (USD 12 billion) and saw 60,000 franchise outlets operating in the same year. However, setting up a branch or outlet in the country requires subjecting the business to heavy regulations and the payment of a 22 per cent corporate income tax. Despite the red tape, many foreign franchises are still eager to enter the Indonesian market to capitalise on the large population and upbeat consumer spending.

Another avenue for investors to consider is e-commerce and logistics. Interestingly, Chinese e-commerce companies have already established their presence there, with 15 million active users on record. The Indonesian government expects the e-commerce market to generate IDR 35 trillion (USD 2.1 billion) on the 12 December National Online Shopping Day. A natural spillover effect from the event would be felt in logistics as it plays a crucial role in delivering products to consumers. These segments illustrate the strong potential for household consumption to build up even further in Indonesia, which international investors can capitalise on in their search for good growth and strong returns.