Signs of economic slowdown have begun to surface in Indonesia. Over the past few months, various indicators suggest that the domestic economy is facing significant challenges. From mass layoffs and rising unemployment to weakening banking performance, all of these serve as warning signs that the Indonesian economy needs urgent attention and proactive measures.

Here are nine key red flags signaling economic risk in Indonesia:

1. Manufacturing PMI Continues to Contract
Indonesia's Manufacturing Purchasing Managers’ Index (PMI), released by S&P in May 2025, showed another contraction, registering at 47.4. This marks the second consecutive month of being in contraction territory, reflecting weakening production activity and declining demand both domestically and in exports.

S&P Global noted that production and new orders have weakened further, with new order declines sharper than those in April—representing the deepest contraction since August 2021.

2. Persistent Deflation
Indonesia recorded another deflation in May 2025 at -0.37%, marking the third deflationary episode this year. On an annual basis, inflation stands at 1.60% year-on-year.

“There was deflation of 0.37%,” said Pudji Ismartini, Deputy of Distribution and Services Statistics, during a recent press conference. She added, “The food, beverage, and tobacco group saw a 1.40% deflation, contributing 0.41% to the total figure.”

Key contributors to deflation included red chili and bird’s eye chili (0.12%), shallots (0.09%), fresh fish (0.05%), garlic (0.04%), and broiler chicken (0.01%).

This deflation follows similar trends in January (-0.76%) and February (-0.48%). While it might reflect easing food prices and the removal of a temporary electricity subsidy, it could also indicate weakened purchasing power and shrinking consumer demand.

3. Q1 GDP Growth Only 4.87%
Indonesia’s GDP growth for the first quarter of 2025 was only 4.87%, the lowest since the pandemic period. This is despite the Ramadan season, which typically boosts consumer spending, but its impact this year was limited.

4. Shrinking Trade Surplus
Indonesia’s trade surplus in April 2025 fell to just US$150 million, with exports totaling US$20.74 billion and imports at US$20.59 billion. The decline was mainly due to weaker exports, potentially affecting the current account and exchange rate stability.

According to BPS deputy Pudji Ismartini, this was the lowest surplus in 60 months (since May 2020). The decline was driven by a sharper fall in exports compared to the slight increase in imports.

5. Steep Drop in Exports
Exports in April 2025 amounted to US$20.74 billion—the lowest in the past year. Oil and gas exports dropped 13.38% to US$1.17 billion, while non-oil exports rose 7.17% to US$19.57 billion. This has reduced foreign exchange earnings and raised the risk of production cuts and layoffs in export-related industries.

6. Rising Layoffs
Mass layoffs are on the rise. Apindo reports that nearly 74,000 BPJS Ketenagakerjaan participants lost their jobs between January and March 2025. In 2024, 257,471 workers left the program due to layoffs, and 154,010 filed for severance. Between January and March 2025, 40,683 more claims were made.

This situation reduces consumer spending and weakens domestic demand, affecting sectors like retail, manufacturing, and services, and reducing investment and productivity.

7. Unemployment on the Rise
As of February 2025, unemployment increased by 83,000 people, reaching 7.28 million. BPS Chief Amalia Adininggar Widyasanti stated this was a 1.11% increase from February 2024.

This not only reduces purchasing power but also risks higher poverty rates, especially for households losing their primary income. It affects the consumption sector, leading to declining business revenues.

8. Slower Bank Credit Growth
As of April 2025, banking credit growth slowed to 8.88% year-on-year, potentially stalling business expansion and consumer spending, particularly in credit-dependent sectors.

OJK’s Dian Ediana Rae said state-owned banks drove credit growth, with their credit rising 8.82% in the first four months of 2025.

9. Declining Bank Profits
Indonesia’s four largest banks posted only marginal net profit growth of about 0.55% year-on-year. This weak performance could lead to tighter lending and a broader economic slowdown.

Declining net interest income (NII) from major banks like BCA and Mandiri contributed to weaker profitability. If this continues, banks may raise lending rates to protect margins, placing additional strain on businesses and consumers.

For investors, lower profit growth may reduce appetite for banking stocks, potentially depressing stock prices and reducing capital inflows into the financial sector.