The global economic downturn in 2025 poses significant challenges for Indonesia's Micro, Small, and Medium Enterprises (MSMEs). Factors such as the escalating Russia-Ukraine conflict, rising U.S. Federal Reserve interest rates, and the El Niño weather phenomenon have collectively impacted the nation's economic stability. Bank Indonesia projects a slowdown in economic growth to 4.2%, the lowest in a decade. Given that MSMEs contribute approximately 61% to Indonesia's GDP, the repercussions of this recession are profound.

Challenges Faced by MSMEs

The Russia-Ukraine conflict has led to a significant surge in global commodity prices. For instance, wheat prices have increased by 25%, and imported soybeans—a primary raw material for tempeh and tofu production—have risen by 30%. Concurrently, the U.S. Federal Reserve's interest rate hike to 6.5% has depreciated the Indonesian rupiah to IDR 16,500 per USD, inflating the costs of imported raw materials for MSMEs. Additionally, the El Niño phenomenon has adversely affected local agriculture, resulting in crop failures for commodities like chili and onions in Java, further pressuring MSMEs to rely on costly imports.

These factors have contributed to an anticipated core inflation rate of 6.8% in Indonesia for 2025. Consequently, consumer purchasing power has diminished, with surveys indicating that 45% of consumers plan to reduce spending on non-essential items. This trend poses a significant threat to MSMEs, especially those dependent on imported raw materials, which constitute about 60% of their production needs.

Case Study: Impact on a Local Coffee Shop

William Putra, the owner of a coffee shop in Gedangan, Sidoarjo, has experienced firsthand the challenges posed by the recession. The 40% increase in imported milk prices forced him to raise the price of his coffee beverages from IDR 26,000 to IDR 33,000. This price adjustment led to a 50% decline in customer patronage, significantly affecting his operational revenue. William emphasizes prioritizing employee welfare despite the downturn, stating that profits have dwindled to merely covering operational costs and staff salaries.

Government Response and Critique

Critics argue that government interventions have been inadequate in safeguarding MSMEs during this economic downturn. Issues such as misallocated subsidies, insufficient digitalization incentives, and a heavy reliance on imports suggest that existing policies may be superficial. The Indonesian Chamber of Commerce and Industry (Kadin) warns that without substantial policy reforms, 30% of MSMEs could face closure within two years.

Strategies for MSME Resilience

Despite these challenges, MSMEs can adopt several strategies to navigate the recession:

1. Digitalization and Market Expansion: Embracing digital platforms can open new markets. For example, Hadinata Batik from Surakarta leveraged platforms like TikTok Shop and Tokopedia, resulting in a 1000% increase in sales. MSMEs can start with minimal investment by utilizing smartphones and internet connectivity to engage in live selling on social media platforms.
2. Diversification and Ecosystem Building: Expanding product lines and fostering business ecosystems can enhance resilience. Creative Digital Printing from Sleman, Yogyakarta, diversified into selling office supplies and offering graphic design services, leading to business growth. Understanding customer needs through simple surveys can guide product diversification and collaborative initiatives with other MSMEs.
3. Building Customer Loyalty: Establishing a loyal customer base is crucial. Recovery Kopi from Banyumas implemented a point-based loyalty program, resulting in 60% of customers returning weekly and promoting the café within their networks. Personalized gestures, such as sending birthday greetings and discount vouchers via WhatsApp, can strengthen customer relationships.

Conclusion

The 2025 recession presents a formidable challenge for Indonesian MSMEs. To survive and thrive, MSMEs must embrace digital transformation, diversify offerings, and cultivate customer loyalty. Simultaneously, the government should implement structural reforms, including tax reductions, dismantling supply chain monopolies, and investing in digital infrastructure, to support MSMEs effectively. Proactive measures from both MSMEs and the government are essential to mitigate the recession's impact and ensure sustainable economic growth.