Trump’s second act and Indonesia’s economic outlook in 2025

January 6, 2025

JAKARTA – When Donald Trump reclaimed the United States presidency in November, it sent ripples across the global stage. Trump is not merely a leader; he is a disruptor, someone who reshapes the rules of the game in trade, monetary policy and geopolitics. For Indonesia, his second term presents a dual challenge: mitigating risks while seizing opportunities. With a projected fiscal deficit of 2.9 percent of GDP (SSI Projection), a weakening rupiah and shifting global dynamics, the year ahead will test Indonesia’s resilience and strategic agility.

Indonesia’s 2024 economic performance was commendable in many respects. The economy is projected to grow by 5.02 percent year-on-year (yoy), supported by solid direct investments and resilient exports, particularly in commodities such as palm oil and nickel.

However, beneath these achievements lie structural challenges. Weak household consumption, a volatile rupiah trading between Rp 15,800 to 16,200 against the US dollar, and diminished investor confidence in local equities painted a mixed picture. Trump’s reelection and its impact on the US monetary policy add a layer of complexity to Indonesia’s fiscal and monetary landscape.

Trump’s fiscal expansion, characterized by tax cuts and aggressive spending, raises inflationary expectations in the US, prompting the Federal Reserve to maintain or slow its rate-cut trajectory. For Indonesia, this translates into sustained capital outflows, a weakening rupiah (forecasted to drop to Rp 16,500 per US dollar in 2025), and limited room for monetary easing. Bank Indonesia (BI) is likely to cut its policy rate modestly to 5.75 percent, but fiscal policy will need to play a bigger role in supporting economic growth.

The fiscal