Indonesia's protests: worrying real-time mobility data but sanguine markets for now

Indonesia had seen protests over economic frustrations this year, but unrest ramped up in late August. Amid an increase in violent incidents and damage to infrastructure, it's worth watching whether economic activity is being chilled in real time.

High-frequency mobility data show a gradually slowing trend since the latest wave of demonstrations started in Jakarta on Aug. 25 and spread beyond the capital. Some workers are opting to stay home; universities shifted to online classes. Commuter rail use saw an especially precipitous decline. (As our second chart shows, mobility correlates with the economy -- most notably during pandemic lockdowns.)

The backdrop for the unrest: a shaky, debt-burdened economy that has seen wages stagnate for young graduates. This made the public mood unreceptive to a proposed hike in housing subsidies for lawmakers -- the move that immediately sparked the August protests. The government backed off from that plan and curbed benefits for parliamentarians in an effort to calm tensions.

For now, Indonesian financial markets have proven relatively resilient. After an initial dip, equities have recovered some ground. Exclusive fund-flow data from EPFR suggest that international allocators are not pulling back from either Indonesian equities or bonds.

The rupiah has yet to recover all of its its declines, however, and the yield curve has widened slightly. This could be the market pricing in the possibility of rate cuts to support growth -- or more long-term inflation risk if fiscal stimulus is used to shore up the economy and mollify voters.

Sovereign borrowing costs in USD terms have edged higher, with spreads over Treasuries up about 10 basis points. That’s a nod to higher risk -- though, to be sure, a much milder move than the shocks seen after Donald Trump's tariffs rocked ASEAN economies earlier this year.

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