Surabaya, Tuesday, August 12, 2025 — Geopolitical turmoil, technological developments, and climate change are creating new challenges and opportunities for the global economy. This is one of the main issues at the 12th East Java Economic Forum (EJAVEC) 2025, a collaboration between the East Java Representative Office of Bank Indonesia (KPwBI), the Faculty of Economics and Business (FEB) Universitas Airlangga, and the Indonesian Economists Association (ISEI) Surabaya. This year's forum carries the theme "Increasing Productivity, Innovation, and Economic Capacity of East Java Amidst Various Global Challenges."
In the forum, Dr. Yose Rizal Damuri, SE, M.Ec. Dev., Ph.D., Executive Director of CSIS, explained how global dynamics are affecting Indonesia, particularly East Java. "The world is facing three major trends shaping the global economy: the innovation race, the transition to green industry, and the need for economic resilience. These trends are reinforced by the use of economic policies as geopolitical instruments, such as the United States' tariff policies," he said. He added that the policies known as Trump policies have caused major shocks for many countries, with two main impacts: the income effect and the substitution effect.
According to Yose Rizal, the income effect has implications for the global economic slowdown and declining demand. CSIS simulations show this directly impacting Indonesian exports, including to the United States. Furthermore, weakening demand in major economies like the US is encouraging China to diversify its markets, potentially triggering a flood of products into Southeast Asia, including Indonesia. This situation could escalate into a broader trade war, with other countries, including Indonesia, likely increasing tariffs to protect their domestic markets.
Meanwhile, the substitution effect is related to changes in the global supply chain. Many companies are now relocating production from China. However, Indonesia is considered to have not optimally capitalized on this opportunity. "Data shows that of 176 Japanese companies relocating to Southeast Asia, 90 chose Vietnam, 34 to Thailand, and 20 to Malaysia. Only 16 companies chose Indonesia," explained Yose Rizal. According to him, there are three main factors behind this situation: Indonesia's production structure, which differs from China's, low integration in the global supply chain, and an uncertain business climate.
Domestically, East Java's contribution to national GDP reaches 15 percent, making it the second-largest province on Java Island after Jakarta. However, investment trends in the region have actually declined slightly, making it a significant challenge to maintain. Yose Rizal emphasized that with its vast potential and strategic position, East Java has the resources to turn things around. With the right policies and collaboration between stakeholders, the opportunity to become a leading investment destination in Southeast Asia remains wide open.
Concluding his presentation, Yose Rizal expressed his hope that East Java could become a pioneer in economic reform in Indonesia. This step is crucial for the region to address global challenges and capitalize on existing strategic opportunities.
Yose Rizal's message aligns with the sustainable development agenda, particularly SDG 8 (Decent Work and Economic Growth) and SDG 9 (Industry, Innovation, and Infrastructure). By strengthening reforms and increasing competitiveness, East Java has the potential to become a driving force for the national economy and a center of sustainable growth in Southeast Asia.
Author: Zawilla Defitrianti Bahtiar (E-Radio FEB UNAIR)
