Indonesia
Indonesia, also known as the Republic of Indonesia (officially), is the largest archipelago in the world. It spans over 1.9million square kilometres and includes more than 17,000. The country is located strategically between the Indian Oceans and Pacific Oceans. It stretches for over 5,000 kilometres. Indonesia, with a population estimated at 284.4 million in 2024, is the fourth-most populous nation worldwide.
The economy of Indonesia is supported by industries like petroleum and natural gases, manufacturing, mining and agriculture. Tourism has also become a major contributor. Indonesia’s tourism sector is one of the most important sectors of the economy. Tourism contributed approximately 5.6% in 2019 to Indonesia’s Gross Domestic Product and 5.1% in 2020, which represents a near-full recovery. The country’s rich culture, tropical beaches, biodiversity and UNESCO World Heritage Sites like Borobudur Temple and Komodo National Park are world-renowned.
According to the World Travel & Tourism Council WTTC projects that Indonesia’s tourism industry will reach IDR 1,269.8 Trillion in 2025 (21% more than 2019), or 5.5% GDP. This is due to a record-high international visitor expenditure of IDR 344 Tillion, which is up 12% compared to the record IDR 302 Tillion for 2019. WTTC explains that the success of this sector is due to strong collaboration between public and private sectors and leadership focusing on sustainability, community inclusion, and resilience. In the future, tourism will contribute IDR 1,897 billion by 2035. It is also expected to support nearly 17,000,000 jobs, creating 3,000,000 more jobs than in 2025.
Indonesia is a popular destination for a wide range of tourists. From eco-tourism and luxury to adventure travel and spirituality, Indonesia has it all. In recent years there has been a surge in international arrivals. Supported by strategic infrastructure investments and initiatives from the government such as “10 New Balis”, which diversify tourism beyond Bali, this is supported by a rise in international arrivals. By 2024, Indonesia’s tourism sector will continue to show signs of growth and recovery, establishing it as a major player in Southeast Asia.
Economic Outlook
— Source: Source: Economist Intelligence Unit (EIU), April 2025
Economic Performance & Outlook
Indonesia has demonstrated consistent macroeconomic resilience, underpinned by a four-year pre-pandemic average GDP growth of 5.0% and a 2.5% compound annual growth rate (CAGR) in GDP per capita (PPP). Following a contraction in 2020, economic activity rebounded strongly, with growth stabilising at 5.0% in 2023–2024. Medium-term forecasts remain favourable, driven by structural reforms, and infrastructure investments. With GDP per capita projected to reach USD22,418 by 2029, Indonesia remains well-positioned as a key emerging economy in Southeast Asia.
Currency Exchange Outlook
The Indonesian rupiah is forecast to depreciate modestly, averaging Rp16,434:US$1 in 2025. This trend reflects persistent global uncertainties, including US monetary policy ambiguity and geopolitical tensions, which weigh on emerging market currencies. The rupiah’s weakness is expected to extend through mid-2026. While structural fundamentals remain intact, any substantial appreciation is unlikely in the short term.
Foreign Direct Investment
Indonesia’s foreign direct investment inflows are projected to reach USD23 billion in 2024, marking a moderate increase from 2023. Annual inflows are expected to stabilise between USD23-24 billion in the short-term, still below the USD25 billion recorded in 2019. Despite global uncertainties, Indonesia’s improving macro fundamentals and tourism-driven infrastructure developments will continue to attract investment.
Interest Rates
Bank Indonesia (BI) reduced the policy rate in January 2025 to 5.75%. BI maintained its policy rate at 5.75% in February. This was done to balance the needs to support economic growth and preserve rupiah stability amid recent currency depreciation. With inflation within the 1.5–3.5% target range, BI is expected to implement one more 25-basis-point cut in 2025. Gradual easing is projected through 2029, with the policy rate stabilising in the 3.5–4.5% range.
Inflation
EIU Indonesian inflation will average 2.3% in the year 2025 due to continued rupiah appreciation and rising import costs such as rice and petrol. The government’s delay of a VAT hike on non-luxury goods is expected to reduce some inflationary pressure. Over the medium-term, Bank Indonesia expects headline inflation to remain within its target range of 3% between 2025 and 2029.
Political Landscape
The first year of President Prabowo Subito’s presidency will be 2025. His large administration suggests a growing budget and bureaucracy. Priorities include the development of infrastructure, EV batteries and free school meal programmes. Budget cuts to Nusantara and other projects, such as the new capital city, have caused protests. This poses a short-term instability risk. Prabowo’s term is expected be completed by 2029, with the help of Vice President Gibran Rakabuming Raka and major Islamic Parties.
