The Organisation for Economic Co-operation and Development (OECD) has\nonce again slashed its economic growth projection for Indonesia amidst\nglobal energy price pressures and increasing policy uncertainty\nresulting from the Middle East conflict.<\/p>\n
In the June 2026 edition of the OECD Economic Outlook, Indonesia\u2019s\neconomic growth is expected to be 4.7% in 2026, down from 4.8% in the\nprevious report. The OECD anticipates that economic growth will\nstrengthen again to the 5% level in 2027 once external pressures begin\nto subside.<\/p>\n
The OECD assesses that rising energy costs and global uncertainty\nwill weigh on household consumption and investment, alongside a\nweakening domestic labour market.<\/p>\n
\u201cRising energy costs and policy uncertainty are expected to weigh on\nconsumption and investment amidst a weakening labour market,\u201d the OECD\nwrote in its report.<\/p>\n
Despite the slowdown, the Indonesian economy is considered more\nresilient than many other developing nations due to its lower dependence\non energy imports from the region.<\/p>\n
The OECD noted that the Indonesian economy actually began 202t6 quite\nstrongly. Gross Domestic Product (GDP) grew by 5.6% year-on-year in the\nfirst quarter of 2026, supported by domestic demand and a 21.8% surge in\ngovernment spending.<\/p>\n
Household consumption and investment also remained solid after\nmonetary policy easing throughout 2025 encouraged lower borrowing costs.\nHowever, several recent indicators have begun to show a weakening\neconomic momentum.<\/p>\n
Retail sales recorded a 1.9% year-on-year decline in April 2026.\nConsumer confidence has also begun to weaken, particularly regarding\nemployment expectations.<\/p>\n
On the other hand, inflationary pressures are starting to rise due to\nthe surge in global energy prices. The OECD expects Indonesia\u2019s\ninflation to rise to 3.4% in 2026 from the previous 1.9% in 2025. This\nincrease is driven by the secondary effects of global energy prices on\ndomestic prices, even though the government continues to maintain\nsubsidised fuel prices.<\/p>\n
The organisation assesses that Indonesia is relatively more resistant\nthan other Asian nations because it remains a net exporter of clean\nenergy when accounting for coal and gas exports. This condition makes\nthe impact of the Middle East conflict\u2019s terms of trade on Indonesia\nmore limited.<\/p>\n
\u201cFor Indonesia, the impact of changes in global trade policy due to\nthe developing conflict in the Middle East is relatively limited,\u201d the\nOECD wrote.<\/p>\n
Nevertheless, the OECD warned that the risk of production cost\npressures remains high due to the surge in fertiliser and industrial raw\nmaterial prices in the global market. Uncertainty regarding external\ndemand also continues to shadow Indonesian exporters, even as United\nStates tariff policies begin to ease.<\/p>\n
The government is deemed to have responded to global energy pressures\nby freezing subsidised fuel prices, accelerating the implementation of\nB50 biofuel, and implementing a one-day-per-week work-from-home policy\nfor civil servants to save energy consumption.<\/p>\n
The OECD expects Indonesia\u2019s fiscal policy to remain expansionary in\n2026. The increase in energy subsidy spending and the free meal\nprogramme is expected to be only partially offset by tax increases and\ncuts in other expenditures.<\/p>\n
The government\u2019s fiscal deficit is projected to be at the 3% level of\nGDP in 2026, while the government debt ratio is set to increase to 40.7%\nof GDP. At the same time, the current account deficit is expected to\nwiden to 0.7% of GDP.<\/p>\n
The OECD also believes that the efficiency of government spending can\nstill be improved, particularly through more targeted energy subsidy\ndistribution to vulnerable groups.<\/p>\n
\u201cPublic spending efficiency can be increased through more targeted\nenergy subsidy distribution to vulnerable households,\u201d the OECD\nwrote.<\/p>\n
In the monetary sector, the OECD expects Bank Indonesia to maintain a\nmoderately tight policy until the end of 2026 to maintain inflation and\nexchange rate stability. The risk of imported inflation is deemed to be\nincreasing after the Rupiah depreciated against the US Dollar since the\nbeginning of the year.<\/p>\n
In addition to energy issues, the OECD also highlighted the\nimportance of strengthening the governance of the Daya Anagata Nusantara\nInvestment Management Agency (Danantara) to ensure its economic impact\nis optimised. The OECD considers strengthening Danantara\u2019s governance\nessential to maximising the contribution of investment to national\neconomic growth.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/oecd-projects-indonesias-economic-growth-at-only-4-7-this-year-1780671021", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }