Regional economic growth in the third quarter of 2025 is expected to remain solid against a backdrop of persistently high global uncertainty. At home, domestic economic activity in various regions was maintained, underpinned by improving investment and accelerated regional government spending. The strongest investment growth was observed in the Java region, primarily driven by investment in industrial zones (KI) and special economic zones (KEK), coupled with accelerated government capital expenditures (CapEx). From an external perspective, exports were predominantly supported by the major commodities of each region, namely precious metals in Java, crude palm oil (CPO) in Sumatera, iron and steel in Sulampua, as well as a shallower contraction of coal exports from Kalimantan. By sector, manufacturing industry performance improved in western regions, accompanied by persistently high growth in eastern regions of Indonesia due to downstream industries. The performance of primary sectors also improved, particularly agriculture, while production constraints impacted mining sector moderation in eastern regions. Improving investment was confirmed by an uptick in construction performance in most regions.
Regional economic performance in 2025 is forecast to remain solid, yet efforts are still required to accelerate growth further. Investment activity is a key driver of growth, as major project expansion continues in various regions, including the petrochemical, automotive and electronics industries in Java as well as the downstreaming of basic metals in Sulampua, Balinusra and Kalimantan. In addition to investment, regional fiscal support is driving regional economic growth, particularly in the second semester of 2025. Stronger investment is bolstering manufacturing industry performance in all regions. Beyond industry, agricultural sector performance in various regions has also indicated improvements, primarily driven by the Government's food self-sufficiency program alongside weather conducive to agricultural production.
Composite Consumer Price Index (CPI) inflation in all regions remained under control in the third quarter of 2025. Core inflation remained low, in line with anchored inflation expectations and the normalisation of domestic demand following the Ramadan and Eid-ul-Fitr festive period. Volatile food (VF) inflation was controlled below the 5% target, despite increasing relative to the preceding period, primarily due to higher horticultural prices as a corollary of high rainfall during the dry season, which undermined production. Meanwhile, administered prices (AP) inflation accelerated in the reporting period due to higher cigarette prices and water rates, among others. At the provincial level, inflation in most provinces remained within the target corridor, with the highest inflation recorded in South Papua at 3.00% (yoy) and the lowest rate in West Papua at 0.67% (yoy) deflation.
CPI inflation in all regions is projected to remain within the 2.5%±1% target corridor in 2025. Domestically, mild core inflationary pressures are supported by monetary policy consistency from Bank Indonesia, anchored inflation expectations, the managed impact of imported inflation and VF spillovers, as well as the positive effect of digitalisation. Inflation dynamics throughout 2025 have primarily been influenced by inflationary pressures on volatile food (VF), mainly stemming from horticultural commodities, despite improving rice supply in line with successful government food security programs to achieve self-sufficiency. Moving forward, Bank Indonesia will focus inflation control efforts on maintaining inflation within the target corridor. Bank Indonesia will also strengthen synergy through the Central and Regional Government Inflation Control Teams (TPIP and TPID), including the National Movement for Food Inflation Control (GNPIP), to safeguard the distribution of food supply from production hubs to non-producing regions.
Moving forward, efforts are still required to continue accelerating domestic economic growth. Bank Indonesia will orient its policy mix towards fostering economic growth and maintaining stability. Through its 46 Representative Offices spanning all regions, Bank Indonesia will also collaborate in synergy with regional governments to boost local economic growth. Bank Indonesia will continue optimising implementation of the National Movement for Food Inflation Control (GNPIP), while expanding digital acceptance and developing the national digital ecosystem. Rapid national and regional digitalisation will support inclusive economic growth and contain inflationary pressures. This edition of the Nusantara Report specifically and comprehensively explores strategies for strengthening digitalisation of the payment system in Part IV Strategic Issue: Strengthening the Ecosystem and Expanding the Acceptance of Digital Payments to Support Growth of Priority Sectors and Government Programs.
