The World Bank has revised down its projection for Indonesia's economic growth in 2025, from 5 percent to 4.7 percent. The downgrade comes amid a deteriorating global economic environment marked by rising trade barriers, policy uncertainties, and declining investment flows.

"Growth in many developing countries, including Indonesia, is expected to slow down due to weakened investment and mounting pressures from worsening external conditions," stated the World Bank in its June 2025 edition of the Global Economic Prospects report, released on Wednesday (June 11).

The report also notes that numerous developing nations, Indonesia included, are facing significant fiscal challenges. Limited government revenues, high subsidy burdens, and substantial interest payments are restricting the fiscal space needed to sustain economic growth.

Prior to the World Bank, the International Monetary Fund (IMF) had also downgraded Indonesia's economic growth forecast from 5.1 percent to 4.7 percent for this year, and predicted that growth would remain flat at that level through 2026.

In its April 2025 World Economic Outlook (WEO), IMF Research Department Director Pierre-Olivier Gourinchas explained that global trade tensions and policy uncertainty are the main factors dragging down economic prospects for both advanced and developing economies, including Indonesia.

"We are entering a new era where the global economic system that has operated for the past 80 years is undergoing a reset. The sharp rise in policy uncertainty, especially due to increasing tariffs, is the main driver of the weakening global economic outlook," he said during the report's press briefing on Wednesday (April 23).

The growth projections by the World Bank and IMF fall well below the Indonesian government's target of 5.2 percent for 2025, as stated in the national budget (APBN). The 4.7 percent forecast also lags significantly behind President Prabowo Subianto's ambitious vision of achieving 8 percent economic growth during his administration—though that target is not expected to be met until 2028.

So what happens if the economy does grow by only 4.7 percent? What should the Prabowo administration do in response?

Yusuf Rendy Manilet, an economist from the Center of Reform on Economics (Core) Indonesia, emphasized that economic growth reflects the aggregate performance of all sectors. A slowdown would inevitably affect various aspects, including production, where businesses would likely adjust operations due to weakening consumer demand.

"As demand declines, cash flow in industries is impacted, prompting them to make adjustments. Unfortunately, one of the common adjustments is laying off workers (mass layoffs)," Yusuf told CNNIndonesia.com.

The situation becomes even more alarming when layoffs increase while job openings remain limited. This could lead to a spike in the number of people living near or below the poverty line.

Yusuf acknowledged that the government's stimulus packages are a positive step, but noted that there is still room to enhance their effectiveness. He suggested more targeted stimulus measures for aspiring middle-income groups or segments of the current middle class, as these groups account for roughly 40 percent of household consumption.

Meanwhile, Andalas University economist Syafruddin Karimi warned that the 4.7 percent growth projection should serve as a serious wake-up call for the government. Not only does it fall short of Prabowo's target, but it's also too low to accommodate the annual influx of new workers.

He stated that Indonesia requires at least 5.5 percent growth just to keep unemployment steady. Any growth below that threshold would stall job creation and increase unemployment rates.

Such a scenario would likely result in rising poverty, especially if the formal sector weakens and the informal sector expands. This would severely erode household purchasing power, weaken consumption—the main driver of growth—and ultimately drag the economy further down.

Syafruddin argued that the government must not remain passive. Prabowo must act swiftly to implement pro-growth fiscal strategies focused on job creation. He recommended prioritizing labor-intensive programs, accelerating infrastructure projects with high multiplier effects, and offering targeted fiscal incentives to labor-intensive industries such as textiles, food, and electronics.

Additionally, he stressed the importance of strong coordination between fiscal and monetary policies. Bank Indonesia needs adequate maneuvering room to maintain currency and interest rate stability to preserve investment confidence.

On the fiscal side, the government should avoid short-term populist measures that drain the state budget, and instead channel spending into sectors that enhance national productivity.

More importantly, Prabowo must build investor and business confidence through concrete structural reforms. Business ease, legal certainty, and institutional strengthening should not just be slogans, but core components of actionable policy design.

Without these reforms, investment will stagnate, and the promised job opportunities will remain unrealized. The World Bank and IMF's 4.7 percent growth forecast for 2025 is not an unavoidable fate, but a stark warning: without a clear policy shift, Indonesia could face real economic stagnation and a surge in unemployment.