INDONESIA closed the Third Quarter of 2025 with growth of 5.04% (y-on-y), 1.43% (q-to-q), and 5.01% (c-to-c). On paper, this is consistent with a “around 5%” trajectory that is often praised as “stable.” But stability is not the same as safety—let alone optimal.
Behind the headline number, there are two equally strong readings: the perspective of a “revival of investment that spills over into manufacturing,” and its counterview—“an illusion masked by export momentum and a shrinking import effect.” Both deserve to be debated honestly before we draw policy conclusions.
Investment Rebounds, Manufacturing Strengthens
From the expenditure side, Gross Fixed Capital Formation (GFCF/PMTB) jumped 6.37% (q-to-q) and 5.04% (y-on-y). This is not just a number; PMTB is the bridge from demand to future production capacity.
A quarterly surge of this magnitude—accompanied by manufacturing growth of 4.09% (q-to-q) and 5.54% (y-on-y)—signals that the supply-side engine is no longer struggling. Manufacturing remains the anchor of GDP (19.15% of GDP structure in this quarter), while construction grew 5.28% (q-to-q). If this trend continues, productivity could rise and the medium-term “speed limit” of the economy (potential growth) may move closer to 5.5%.
Exports of goods and services also grew strongly by 6.77% (q-to-q) and 9.91% (y-on-y). Although exports are influenced by commodity cycles and trading partner recovery, the simultaneous rise in PMTB suggests a healthy combination: exports provide markets, while investment provides capacity.
In the sectoral breakdown, education services grew in double digits (10.59% y-on-y), enriching the “value-added services component”—an important asset for an economy aiming to escape the middle-income trap. Spatially, Java contributed 56.68% of GDP and grew 5.17% (y-on-y), while Sulawesi became the growth leader at 5.84%—reflecting that manufacturing strengthening and downstream industrialization outside Java are starting to be felt.
GDP Boosted by Mechanical Effects
The positive headline from BPS must also be examined from its shadow side. First, household consumption—the backbone of more than half of GDP—actually contracted by 0.56% (q-to-q), although it still grew 4.89% (y-on-y). Structurally, household consumption still dominates (53.14%), but this quarterly weakening is hard to ignore, especially when purchasing power is eroded by volatile food/energy prices and real interest rates that have not truly eased even with liquidity injection of IDR 200 trillion and a cut in the BI rate.
Second, imports of goods and services fell 0.74% (q-to-q). In GDP accounting terms, imports are a subtraction; when imports weaken, GDP rises mechanically. However, for the production engine, weak imports may signal weaker inflow of raw materials/capital goods needed by industry—or a slowdown in trade volume. In other words, part of the quarterly growth may look strong due to the “import subtraction effect,” rather than genuine domestic demand strength.
In the financial and insurance sector, contraction reached 4.13% (q-to-q), while government administration fell sharply by 17.15% (q-to-q)—even if seasonal in nature, it still reminds us how fiscal/liquidity cycles can drag aggregate demand in certain periods. On the annual production side, mining and quarrying fell 1.98% (y-on-y), indicating that commodity tailwinds have not fully supported growth, despite ongoing downstreaming efforts. In essence: without strong consumption support and a recovery in imports of production inputs (signaling real industrial expansion), 5% growth risks becoming a “running in place” situation.
Testing Assumptions and Policy Direction
Popular assumption: “As long as exports and investment are strong, we are safe.” But economic reality is not that simple. Strong exports without corresponding imports of production inputs may only reflect short-term margins, not sustainable capacity expansion. High investment that does not translate into productivity gains and total factor productivity (TFP) will quickly lose momentum. Meanwhile, weak household consumption can break the transmission of the investment multiplier to other sectors.
Therefore, the policy toolbox must be sharper: (i) maintain purchasing power (targeted food/transport support that is well-measured, not wasteful), (ii) smooth imports of raw materials and capital goods for manufacturing (permitting and customs reforms to reduce dwell time), (iii) improve the quality of PMTB—especially digitalization programs for MSME and mid-tier manufacturing processes—so investment truly enhances productivity, and (iv) strengthen the labor market (reskilling) so that the surge in double-digit education services translates into usable industrial competencies.
Conclusion
This quarterly figure provides fuel for optimism and increasingly positive expectations: PMTB is rising, manufacturing is strengthening, exports are impressive. But small warning signals are also flashing: consumption is weakening quarterly, imports are declining, and several financial and public service sectors are under pressure. The 5.04% performance should be a “floor base,” not a “ceiling.”
The next policy task is to ensure that exports and investment do not stand alone, but instead spill over into productivity and purchasing power. Only then will 5.04% transform from fragile stability into a real economic foundation—and become a stepping stone toward faster future growth.
The author is Professor of Economics, Dean of FEB Universitas YARSI, and Director of Research at GREAT Institute.
