Indonesia’s Growth Holds Steady, but Jobs and Digital Gaps Threaten Long-Term Prosperity

The World Bank’s December 2025 Indonesia Economic Prospects finds that while Indonesia has maintained stable 5 percent growth, weak job quality, falling real wages, and rising household insecurity are undermining consumption and confidence. It argues that upgrading digital infrastructure is critical to boosting productivity, creating better jobs, and sustaining inclusive long-term growth.

Produced by the World Bank Group through its Jakarta office, under the Indonesia Economic Prospects (IEP) program of the World Bank’s Economic Policy Global Practice and supported by the Australia–World Bank Indonesia Partnership (ABIP), the December 2025 report Digital Foundations for Growth examines how Indonesia’s economy is performing and what it needs to grow stronger in the years ahead. The report combines macroeconomic analysis with a deep dive into digital infrastructure, arguing that Indonesia’s future prosperity depends not only on stable growth today but on better jobs, higher productivity, and stronger digital foundations tomorrow.

An Economy That Is Stable but Losing Momentum

Indonesia’s economy showed resilience in 2025, growing at around 5 percent despite global uncertainty, geopolitical tensions, and shifting trade patterns. Growth was supported by solid investment and a temporary boost from exports, especially commodities such as palm oil, iron, steel, and gold. Services remained the backbone of economic activity, while agriculture rebounded thanks to good weather and government support. Inflation increased during the year, mainly because of higher food prices, but stayed within the central bank’s target range, allowing macroeconomic stability to be maintained.

However, the report stresses that this stability hides emerging weaknesses. Private consumption, traditionally Indonesia’s main growth driver, slowed as household purchasing power weakened. Credit growth also softened, and confidence among consumers and investors became more fragile. While the economy has avoided major shocks, it is increasingly reliant on temporary factors such as commodity demand, rather than strong domestic engines of growth.

Jobs Are Growing, but Job Quality Is Not

A central concern of the report is the labor market. Employment continued to rise in 2025, but most new jobs were created in low-paying sectors such as agriculture and low-value services. Better-quality, middle-class jobs remain scarce. Real wages have been falling for several years, especially for middle- and high-skilled workers, and the share of middle-skilled jobs is shrinking. Young people entering the labor market are mostly absorbed into informal, low-tier work, while many women remain outside the workforce well into their prime working years.

These trends have direct consequences for households. Even though poverty has continued to decline, many families feel less secure. Surveys show that more Indonesians now consider themselves poor, particularly among the middle class. Income volatility is rising, savings are limited, and households are increasingly cautious in their spending. As a result, consumption growth is weakening, making the economy more vulnerable to shocks.

Policy Support Under Tight Constraints

The government responded to these pressures with targeted fiscal and monetary support, but policy space is narrowing. Public revenues weakened in 2025 due to easing commodity prices, faster tax refunds, and the transfer of state-owned enterprise dividends to the new sovereign wealth fund, Danantara. Despite this, the government delivered fiscal stimulus equivalent to about 0.5 percent of GDP, focused on social assistance, worker support, and incentives for selected sectors.

Monetary policy also became more accommodative, with Bank Indonesia cutting interest rates significantly. Yet the report finds that lower policy rates did not fully translate into stronger lending or investment. Credit growth slowed, partly because firms lacked bankable projects and banks remained cautious. At the same time, lower interest rate differentials contributed to capital outflows and pressure on the exchange rate, forcing the central bank to intervene to maintain stability.

Digital Foundations for the Next Phase of Growth

The report’s special focus argues that Indonesia’s long-term growth challenge cannot be solved without better digital infrastructure. Internet use has expanded rapidly, but access remains uneven and quality is low by regional standards. Fixed broadband reaches only a small share of households, internet speeds lag behind peers, and rural and eastern regions remain poorly connected. Mobile coverage is nearly universal, but limited spectrum and slow 5G rollout reduce performance. Data center capacity, crucial for cloud computing and artificial intelligence, remains far below that of neighboring countries.

These weaknesses limit productivity, restrict access to quality education and health services, and reduce Indonesia’s attractiveness for digital and high-tech investment. The report concludes that improving digital infrastructure is not just a technology issue but a core economic reform. Expanding broadband, increasing competition, clarifying digital regulations, and mobilizing private investment can help Indonesia create better jobs, boost productivity, and ensure that growth benefits more people. Without these reforms, Indonesia may remain stable in the short term, but its ambition of sustained, inclusive, high-income growth will be much harder to achieve.