Ramadan and Eid al-Fitr are traditionally periods of increased economic activity in Indonesia, marked by heightened consumer spending and travel. However, recent analyses suggest that the 2025 celebrations may not provide the anticipated boost to the nation's economy. Several factors contribute to this projection.

Declining Purchasing Power

Economist Esther Sri Astuti from the Institute for Development of Economics and Finance (Indef) highlights a significant decline in purchasing power among Indonesians. This downturn is partly attributed to recent political and economic upheavals, leading to a contraction of the middle-class population. Data from Statistics Indonesia (BPS) indicates that the middle-class demographic shrank from 57.33 million in 2019 to 47.85 million in 2024, a reduction of 9.48 million people. This contraction suggests that fewer individuals have discretionary income, potentially dampening consumer spending during the festive season.

Shifts in Consumption Trends

The decline in purchasing power is expected to alter consumption patterns during Ramadan and Eid al-Fitr. While these occasions are typically associated with increased spending on food, travel, and gifts, the current economic climate may prompt more cautious financial behavior. Astuti notes that although enthusiasm for the celebrations remains, individuals are likely to adjust their expenditures to align with their financial situations. This adjustment could manifest in reduced travel, scaled-back festivities, and a focus on essential purchases over luxury items.

Inflationary Pressures

Historically, Indonesia experiences inflationary peaks during Ramadan and Eid al-Fitr due to heightened demand for goods and services. In 2024, the inflation rate decreased for three consecutive months following the end of the festive period, influenced by the subsiding impact of El Niño and consistent monetary policies. However, the anticipated decline in consumer spending in 2025 may mitigate typical inflationary pressures, leading to a more stable price environment but also indicating subdued economic activity.

Impact on the Stock Market

The Indonesian stock market often reflects the broader economic sentiment during significant cultural events. Studies have examined the "Ramadan effect" on stock returns, investigating potential anomalies in market performance during the holy month. Research analyzing data from 2012 to 2017 found no significant differences in stock returns before, during, or after Ramadan, suggesting that the period does not inherently influence market behavior. In the context of 2025, the combination of reduced consumer spending and economic uncertainties may contribute to cautious investor sentiment, potentially leading to muted stock market performance during the festive season.

Conclusion

While Ramadan and Eid al-Fitr have historically served as catalysts for economic activity in Indonesia, the 2025 celebrations are projected to have a limited impact on economic growth. Factors such as declining purchasing power, shifts in consumption trends, and inflationary pressures contribute to this outlook. Understanding these dynamics is crucial for policymakers and businesses as they navigate the economic landscape during these culturally significant periods.