Indonesia’s Foreign Direct Investment (FDI) YoY figure for October 2025 registered a -8.90% contraction, according to the latest data from the Sigmanomics database. This reading is notably weaker than the -7.00% recorded in September 2025 and falls short of the consensus estimate of -6.00%. The decline contrasts sharply with the robust FDI inflows seen during 2024, where growth rates consistently exceeded 12%, peaking at 33.30% in January 2025.

Drivers this month

• Global monetary tightening reduced risk appetite among foreign investors.
• Heightened geopolitical tensions in Southeast Asia increased uncertainty.
• Domestic fiscal tightening constrained government incentives for investment.

Policy pulse

Indonesia’s central bank has maintained a cautious stance, keeping benchmark rates steady at 5.50% amid inflation pressures. However, tighter global financial conditions have raised borrowing costs for foreign investors, dampening capital inflows.

Market lens

Following the FDI release, the Indonesian rupiah (IDR) depreciated by 0.40% against the USD, while the Jakarta Composite Index (JCI) fell 0.70%, reflecting investor concerns over capital outflows and economic growth prospects.

Indonesia’s macroeconomic backdrop remains mixed. GDP growth slowed to 4.70% YoY in Q3 2025, down from 5.10% in Q2. Inflation held steady at 3.80%, slightly above the central bank’s 3.50% target. The fiscal deficit widened to 3.20% of GDP, driven by increased subsidies and infrastructure spending. Meanwhile, the current account deficit narrowed to 1.50% of GDP, supported by commodity export strength.

Monetary Policy & Financial Conditions

Bank Indonesia has kept its policy rate unchanged at 5.50% since July 2025, balancing inflation control with growth support. However, global rate hikes by the US Federal Reserve and ECB have tightened financial conditions, increasing Indonesia’s external borrowing costs and reducing foreign portfolio inflows.

Fiscal Policy & Government Budget

The government’s fiscal stance remains moderately expansionary but constrained by rising debt service costs. The 2025 budget targets infrastructure and green energy investments but faces pressure from lower-than-expected tax revenues and rising subsidies.

External Shocks & Geopolitical Risks

Heightened tensions in the South China Sea and trade uncertainties with major partners have increased risk premiums. Additionally, global supply chain disruptions and commodity price volatility have added to investor caution.

Market lens

Immediate reaction: The Indonesian rupiah weakened 0.40% against the USD within the first hour post-release, while the Jakarta Composite Index declined 0.70%, reflecting investor concerns over capital outflows and growth prospects.

Looking ahead, Indonesia’s FDI outlook hinges on several key factors. The global monetary policy environment remains uncertain, with the US Federal Reserve signaling possible further hikes. Geopolitical tensions in the Indo-Pacific region could persist, while domestic fiscal space is limited.

Bullish scenario (20% probability)

• Global inflation eases, prompting rate cuts and improved risk appetite.
• Indonesia accelerates structural reforms, boosting investor confidence.
• FDI growth rebounds to +5% YoY by mid-2026, supporting GDP growth above 5%.

Base scenario (55% probability)

• Global rates stabilize, but geopolitical risks remain elevated.
• FDI contraction moderates, stabilizing around -2% YoY through early 2026.
• GDP growth holds near 4.50%, with gradual fiscal consolidation.

Bearish scenario (25% probability)

• Global recession triggers sharp risk-off, further reducing FDI.
• Domestic political uncertainty delays reforms and fiscal tightening.
• FDI contracts beyond -10%, dragging GDP growth below 4%.

Policy pulse

Policy makers must weigh the trade-offs between tightening fiscal discipline and providing incentives to attract foreign capital. Enhanced transparency, streamlined regulations, and infrastructure investments could help reverse the FDI decline.

Indonesia’s October 2025 FDI YoY contraction to -8.90% signals a challenging environment for foreign investors. The sharp reversal from prior strong growth underscores the impact of global financial tightening and geopolitical uncertainties. While the medium-term outlook remains cautiously optimistic given Indonesia’s demographic and strategic advantages, near-term risks require vigilant policy responses. Restoring investor confidence through structural reforms and fiscal prudence will be critical to sustaining capital inflows and supporting economic growth.

Key Markets Likely to React to Foreign Direct Investment YoY

Indonesia’s FDI data typically influences equity, currency, and commodity markets sensitive to emerging market capital flows. Key tradable symbols include:

• JCI – Jakarta Composite Index, directly impacted by FDI-driven economic growth.
• USDIDR – USD/Indonesian Rupiah pair, sensitive to capital flow shifts.
• BBCA – Bank Central Asia, a leading bank reflecting domestic financial conditions.
• BTCUSD – Bitcoin, often a risk sentiment proxy affecting emerging markets.
• EURUSD – Euro/US Dollar, influencing global liquidity conditions.

Frequently Asked Questions

What does Indonesia’s Foreign Direct Investment YoY indicate?

It measures the annual percentage change in foreign capital invested in Indonesia, reflecting investor confidence and economic prospects.

Why did FDI decline sharply in October 2025?

The decline was driven by global monetary tightening, geopolitical risks, and domestic fiscal constraints reducing investor appetite.

How does FDI impact Indonesia’s economy?

FDI supports job creation, technology transfer, and infrastructure development, boosting long-term growth potential.

Final takeaway: Indonesia’s FDI contraction is a warning signal amid global and domestic headwinds. Proactive reforms and stable policies are essential to reverse the trend and sustain growth.