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New Threats To The Indonesian Economy: US Tariffs Rise, Consumption Slumps, Layoffs Rise

Global uncertainty is further weighing on Indonesia's economic recovery. With the United States (US) extending the tariff negotiation deadline from July 9 to August 1, 2025, the Indonesian government faces the challenge of maintaining export competitiveness and reviving sluggish domestic consumption. Dimas Ardhinugraha, Investment Specialist at PT Manulife Aset Manajemen Indonesia (MAMI), stated that the market was relatively neutral in responding to the new US tariff announcement. However, he emphasized the importance of negotiations to lower Indonesia's tariff rate, currently at 32 percent, and make it more competitive, similar to Vietnam's (20 percent). "There's still time until August 1. Otherwise, Indonesia's competitive position could become even less competitive than Vietnam, although it's still better than Bangladesh and Cambodia," Dimas said in the "Seeking Alpha July 2025 Edition" report received by Kompas.com on Thursday (July 10, 2025). 

Amidst these tariff dynamics, the Fed has also been unable to lower its benchmark interest rate due to the uncertainty surrounding the tariffs' impact on inflation. In fact, US economic data shows that consumption is starting to weaken, with personal income rising 0.8 percent but spending only 0.2 percent in April 2025. 

Domestic Consumption Sluggish Domestically, signs of an economic slowdown are increasingly evident. The Consumer Confidence Index (CCI) in May 2025 fell to 117.5, the lowest level since 2022. Car sales through May were only 317,000 units, lower than in 2021 during the pandemic. The manufacturing sector has also not shown any recovery. The PMI index has been in the contraction zone for the past three months, at 46.7 in April, rising slightly to 47.4 in May, and then dropping again to 46.9 in June. Credit growth in May was recorded at 8.1 percent year-on-year, prompting Bank Indonesia to revise its annual target from 11–13 percent to 8–11 percent. 

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Tag: Consumer Confidence Index Global Uncertainty United States