Economic growth eases in the second quarter of 2026

GDP growth cools less than markets had expected: Indonesia's GDP expanded 5.3% on a year-on-year basis in Q2, following a 5.6% expansion in the previous quarter and surpassing market expectations of a sharper loss in momentum from Q1.

Private spending and net trade behind Q2’s deceleration: Relative to the previous quarter's data, readings in Q2 softened for private consumption (+5.1% in annual terms vs +5.5% in Q1) and government consumption (+16.0% vs +21.8% in Q1). In contrast, readings picked up for fixed investment (+6.9% vs +6.0% in Q1), exports of goods and services (+4.1% vs +0.9% in Q1) and imports of goods and services (+8.8% vs +6.4% in Q1). While household spending failed to get a boost from public stimulus and net trade continued to detract from overall GDP growth, capital investment benefited from government capex disbursements.

GDP growth to slow further by end-2026: GDP growth should cool further in H2 to around its recent trend of 5%. Inflation is set to rise further from Q2’s average by December, boding ill for momentum in private spending, while weak business sentiment and higher interest rates could pose headwinds to capital outlays. Some of our panelists also expect that fiscal constraints will cap the government’s spending spree in the remainder of the year. Risks to GDP growth are tilted to the downside and include a stronger-than-expected El Niño curbing agricultural output, dampening export revenues and fanning food inflation.

Panelist insight: ANZ’s Krystal Tan commented: “We expect growth to moderate in H2 rather than accelerate from the 5.45% y/y pace seen in H1. We now forecast 5.2% y/y growth for 2026, up from 5.0% previously. The main constraint is that private demand looks increasingly cautious. Formal job creation is limited, while household sentiment has softened. […] Investment sentiment may also be constrained by concerns around policy uncertainty and a more interventionist policy direction, particularly around strategic sectors and state-linked initiatives. External demand is unlikely to provide a major offset.”

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