INDONESIA’s consumer market experienced a significant surge heading into the year-end festivities.
Leisure spending flourished during the holiday season, buoyed by the government’s “work from anywhere” policy in the final week of 2025.
This momentum actually began earlier than expected; Bank Indonesia (BI) reported that the Real Sales Index maintained an annual growth rate of 5% over the last quarter, peaking at a robust 5.9% in November of last year.
This increasing consumer appetite has breathed new life into production sectors, particularly manufacturing.
Indonesia’s Purchasing Managers’ Index has remained in expansion mode since August 2025, reaching a peak of 53.3 in November.
Crucially, this growth has been driven by a hungry domestic market, which has managed to offset cooling demand for Indonesian exports overseas.
This recent development marks a substantial turnaround from the first three quarters of the year, a period defined by waning business confidence and the public unrest seen in August.
In the first half of 2025, aggressive fiscal contraction inadvertently stifled business activity and eroded the purchasing power of the lower-middle class, a demographic already under significant pressure since the Covid-19 pandemic.
The current recovery raises a critical question: Is this growth organic, or is it the result of the government’s aggressive policy interventions?
The central bank has lowered policy rates five times since last year, while the government has rolled out a series of fiscal stimuli.
The most high-profile move came in September 2025, when the newly appointed Finance Minister Purbaya Yudhi Sadewa injected 200 trillion rupiah of fiscal savings into five state-owned banks.
The goal was to flood the market with liquidity, encouraging banks to lend to micro, small and medium enterprises, in theory creating a supply-side engine for growth.
However, focusing solely on credit expansion risks overlooking the fundamental issues of inequality and structural weakness in domestic demand.
Recognising this, the government subsequently released the “8-4-5” stimulus packages in October 2025, which included specific job creation programmes.
These measures represent progress, signalling that policymakers understand that purchasing power is the prerequisite for sustained growth.
Despite the rise in retail sales and manufacturing performance, the claim that the economy has been “fully restored” is challenged by the reality of household finances.
The majority of Indonesians, specifically those with bank account balances under 100 million rupiah, saw their savings growth weaken until very recently.
This indicates that many are still dipping into savings to fulfill basic needs. This financial strain is exacerbated by the fact that average real wages were 0.4% lower in 2025 than in the previous year.
Consequently, consumption credit has continued to slow throughout the year. This suggests that while the “supply” of money is available thanks to the bank injection, the “demand”, or the confidence to borrow, remains fragile.
When purchasing power is weak, pushing banks to lend aggressively is a high-stakes strategy.
To avoid letting billions in stimulus funds sit idle, banks may be tempted to lower their standards, lending to unqualified or high-risk debtors.
This risks driving up non-performing loans. Indeed, non-performing loan rates have begun to edge upward in recent months, particularly among the state-owned banks that received the liquidity injection.
For micro, small and medium enterprises credit, the non-performing loans ratios are even more concerning.
This data suggests that the recent spending spree may be less of a fundamental recovery and more of a seasonal spike, driven by upper-middle-class holiday spending and a shift in Gen Z behavior toward “experience-based” leisure.
Entering 2026, global uncertainties and geopolitical tensions are likely to intensify, placing greater pressure on the domestic economy.
If export performance weakens under these circumstances, labour income and household consumption will be adversely affected. — The Jakarta Post/ANN
Mohammad Faisal is executive director of the Centre of Reform on Economics Indonesia. The views expressed here are the writer’s own.
