Jakarta. The World Bank has raised Indonesia’s economic growth forecast to 4.8 percent in 2025, up slightly from its previous projection of 4.7 percent in April. Growth in 2026 is expected to remain at the same level, according to the World Bank’s East Asia and Pacific Economic Update (EAP) released in October 2025.

Despite the upward revision, the Bank warned that growth across East Asia and the Pacific (EAP), while still above the global average, will likely slow in 2025 and further in 2026 amid increasing global headwinds.

Aaditya Mattoo, the World Bank’s Chief Economist for East Asia and the Pacific, said growth across the region is expected to slow in 2025 compared to 2024, as trade restrictions, heightened policy uncertainty, and weaker global momentum weigh on expansion. East Asia and Pacific's growth as a whole is forecasted at 4.8 percent in 2025 and will be declining to 4.3 percent in 2026.

The Bank noted that many firms across the region have adopted a “wait and see” approach, holding off on capital spending amid persistent uncertainties. A one-percentage-point decline in G7 growth could shave off 0.6 percentage points from developing economies’ growth in East Asia and the Pacific in the following year, the report said.

Domestic Reform Key for Resilience

While growth in several EAP countries, particularly China and Indonesia, remains relatively strong at around 5 percent per year, the Bank cautioned that such momentum has been supported largely by government spending.

"Indonesia, meanwhile, has kept its deficit within fiscal rules, but the composition of spending with a focus on subsidies for food, transport, and energy, as well as state-directed investment, could be optimized," the World Bank reported.

The Bank emphasized that structural reforms, including easing non-tariff barriers, deregulation, and business licensing simplification, are key to unlocking higher potential growth and job creation.

Labor Market Faces Structural Shifts

The EAP region’s labor market remains resilient overall, with most people finding work. However, youth unemployment remains a major challenge, one in seven young people in both China and Indonesia are jobless. Technological advancements, digitalization, and the spread of artificial intelligence (AI) are reshaping labor markets, boosting productivity in some sectors while displacing traditional jobs in others.

In Indonesia, the youth population aged 15–24 makes up almost 15 percent of the total, compared to less than 5 percent in the prime working-age group (25–54) and slightly less among older workers (55–64). The female labor participation rate also trails men by about 15 percentage points, similar to gaps seen in Malaysia and the Philippines.

"China, Vietnam, and Thailand are aging, while the Philippines, Indonesia, and Cambodia are seeing youth bulges," World Bank stated.

The World Bank noted that demographic contrasts with aging populations in countries like China and Malaysia, and growing youth populations in Indonesia and Cambodia, will shape future employment dynamics.

The report highlighted that creating more productive jobs is crucial, not only for youth and women but also in the Pacific Islands, where the share of working-age people in employment remains below the global average.

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