Indonesian stocks tumble 7% on concerns over economy

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Indonesia’s main stock index fell 7 per cent on Tuesday as concerns mounted over weakening consumer spending in south-east Asia’s largest economy and President Prabowo Subianto’s costly spending plans. 

The Jakarta Composite index dropped as much as 7.1 per cent to hit its lowest level since 2021. The stock exchange halted trading briefly after the index fell 5 per cent but shares fell further when trading resumed.

The index has slid around 14.2 per cent this year and is among the worst performers globally. 

Investors have been spooked by slowing consumption in Indonesia, where purchasing power and consumer confidence has been declining in recent months.

Indonesia’s middle class has been under pressure from a lack of adequate formal employment and a decline of the manufacturing sector. 

In January, the central bank unexpectedly cut interest rates to boost growth despite the weakening of the rupiah. It also lowered the full-year growth forecast to a range of 4.7 per cent to 5.5 per cent, from a previous estimate of 4.8 per cent to 5.6 per cent.

The bank is holding a monetary policy meeting this week and is due to announce its interest rate decision on Wednesday.

Since coming to power in October, Prabowo has launched a nationwide free meals programme for schoolchildren and pregnant mothers, a policy that is expected to cost $28bn a year.

The plan has placed a strain on already-stretched finances and prompted widespread austerity measures, hitting sectors including infrastructure.

“While the government’s rollout of social assistance may cushion purchasing power, the consumption recovery is envisioned to be weaker than previously expected. Rising economic uncertainty and job worries ensuing from Chinese competition are weighing on spending appetite,” Brian Lee, an economist with Maybank Investment Banking Group, said in a research note on Tuesday.

Maybank lowered Indonesia’s 2025 growth forecast to 5 per cent from 5.2 per cent.