Beware of Indonesia's Economic Signals
The performance of the Indonesian economy in the second quarter of 2026 grew by 5.29%, better than the same period in at least the last three years. However, conditions in the following months are giving warning signals.
In June 2026, the Composite Leading Indicator (CLI) issued by the Organisation for Economic Co-operation and Development (OECD) for Indonesia was recorded as declining. This indicator is not a determinant of whether a country will experience a recession. However, its movement can provide an early indication of the direction of the economy in the coming months.
Simply put, the CLI works like a vehicle’s windscreen. Gross Domestic Product (GDP) growth shows the journey that has been passed, while the CLI helps to see the road conditions ahead. Therefore, the decline in the CLI needs to be noted even though Indonesia’s economic growth currently still looks fairly stable.
The warning signal is becoming clearer because at the same time, investment by domestic business players is also weakening. Realisation of Domestic Direct Investment (PMDN) in the first half of 2026 decreased compared to the same period the previous year. This decline could be a sign that domestic companies are starting to hold back expansion, either because demand is not yet strong, business costs are rising, or policy uncertainty.
The weakening of domestic investment should not be seen solely as an investor problem. When the business world postpones the construction of factories, the purchase of machinery, or the opening of new branches, job opportunities and demand for various goods and services are also held back. If it lasts long enough, the impact will spread to household consumption and overall economic growth.
Moreover, the results of a Bank Indonesia (BI) survey revealed that consumer confidence has continued to fall since January 2026. When expectations weaken, people usually hold back on spending, or consumption.
In this review, NEXT Indonesia Center examines how strong the slowdown signal is by comparing the movement of a number of leading indicators and developments in real economic activity. This study also identifies the parts of the economy that are beginning to lose momentum while formulating steps that the government needs to take so that the slowdown can be prevented before it develops into a more serious problem.
Two Indicators, One Direction of Weakening
There are two indicators that can be used to try to see the direction of economic performance in the coming months, namely the Composite Leading Indicator (CLI) released by the OECD and the Leading Economic Indicator (LEI) issued by CEIC, a global macroeconomic data and analysis provider. Although they have similar functions, there are differences between the two.
The indicator issued by the OECD is designed to provide an early signal when the economic cycle begins to turn, either from strengthening towards slowing down or vice versa. This indicator is compiled from a number of data that tend to move ahead of overall economic activity. Therefore, the CLI is not used to forecast the magnitude of economic growth, but rather to read the direction of change: strengthening, flattening, or weakening.
Meanwhile, the indicator from CEIC captures changes in economic momentum before they are fully visible in national economic performance data or Gross Domestic Product (GDP). However, the components and methods of compiling the LEI differ from the CLI. Therefore, the two cannot be compared directly. What can be compared is the direction of movement, the duration of the trend, and the timing of the turning point.
Throughout 2024, both indicators still signalled a strengthening Indonesian economy. In January 2024, the CLI indicator moved from 99.65 to 100.16 in November 2024. In the same period, the LEI rose more strongly from 95.04 to 101.76.
Both weakened in early 2025, but rose again in the second half of that year. The CLI reached a peak of 100.73 in December 2025, while the LEI touched its peak of 102.33 earlier, in November 2025.
After that, the direction of both indicators reversed. The signal issued by the CLI indicated that the Indonesian economy declined for six consecutive months, from 100.73 in December 2025 to 99.81 in June 2026. The decline was indeed only 0.92 points or 0.91%, but it occurred consistently. In May 2026, the CLI was still exactly at the 100.00 level before falling below that level in June.
The signal from the LEI appeared earlier and was much sharper. This indicator has been declining since December 2025 and continued to fall until June 2026. Its value fell from 102.33 in November 2025 to 92.41 in June 2026, or by 9.69%. The LEI has even been below the 100 level since February 2026.
The similarity in the direction of the two indicators shows that Indonesia’s economic momentum is losing steam. The difference lies in the strength of the signal. The CLI shows a slowdown that is still gradual, while the LEI shows a much deeper weakening.
However, the 9.69% decline in the LEI does not mean that Indonesia’s GDP will contract by the same amount. The figure only shows that the leading indicators compiled by CEIC deteriorated quite quickly compared to several months earlier.
If examined further, the greatest pressure on the CLI is seen in the share price component. This component index fell from 100.76 in December 2025 to 99.16 in June 2026, or by 1.59%. Share price movements are not always the same as current economic conditions, but they can reflect changes in investor expectations regarding company profits, business prospects, and future economic risks.
Weakening is also beginning to be seen in consumer confidence. The consumer confidence index (CCI) in the CLI fell from 100.42 in February to 100.11 in May 2026. The June figure is not yet available in the OECD series. However, data published more quickly by Bank Indonesia shows that the pressure is continuing. The Consumer Confidence Index (CCI) fell from 120.9 in May to 117.8 in June 2026. Although still above 100, or in the optimistic zone, the decline shows that public confidence in economic conditions is beginning to diminish.
The tourism activity component also fell from 100.97 in August 2025 to 100.72 in May 2026. As with the consumer confidence component, the June figure in the OECD series is not yet available. However, the latest data from Statistics Indonesia (BPS) shows that foreign tourist arrivals in June 2026 reached 1.4 million visits, slightly up compared to May, but down 2.15% year-on-year. Conversely, domestic tourist trips still grew 1.98% to 107.2 million trips, while the occupancy rate of star-rated hotel rooms increased to 54.28%. This means that the weakening of foreign tourists is still offset by domestic tourism activity and the increase in hotel occupancy rates.
Not all components of the CLI issued by the OECD are moving down. The exchange rate index increased from 99.84 in December 2025 to 100.31 in June 2026. The producer price index also rose from 99.26 to 100.45, while the short-term interest rate component increased from 99.21 to 99.38. These differing movements show that the weakening has not occurred evenly across all sides of the economy.
Nevertheless, the similarity in the direction of the CLI and LEI cannot be ignored. Two indicators with different methods both show a turning point at the end of 2025 and a weakening that continued until June 2026. The decline in consumer confidence further strengthens this signal.
This series of data is indeed not enough to conclude that Indonesia is heading for a recession, but it is strong enough to turn on a yellow light. The next question is whether the weakening has spread to investment, consumption, and real economic activity.
Household Consumption Begins to Sluggish
The slowdown signal shown by the Composite Leading Indicator (CLI) from the OECD and the Leading Economic Indicator (LEI) published by CEIC is beginning to be reflected in one of the main drivers of the Indonesian economy, namely household consumption. Throughout 2025, the value of household consumption reached Rp12,834.8 trillion, or 53.88% of Gross Domestic Product (GDP).
In the first half of 2026, its value was recorded at Rp6,856.7 trillion with a contribution of 53.82%. The large share shows that the direction of national economic growth is highly dependent on the ability and confidence of the public in maintaining spending.
The next largest component is Gross Fixed Capital Formation (GFCF), or investment in fixed assets such as buildings, infrastructure, machinery, vehicles, and production equipment. Its value reached Rp3,674.2 trillion in the first half of 2026, contributing 28.84% to GDP, slightly up from 28.77% in 2025. Conversely, the contribution of government consumption fell from 7.53% to 7.16%.
From the external trade side, exports of goods and services contributed 22.22% to GDP in the first half of 2026, while imports reached 22.18%. Thus, the contribution of net exports was only around 0.04%, much smaller than 2.31% throughout 2025. This condition further emphasises the large dependence of the Indonesian economy on household consumption and investment.
However, the position of household consumption as the main pillar of the economy is beginning to face pressure. The Consumer Confidence Index (CCI) fell from 123.0 in April to 120.9 in May, then weakened again to 117.8 in June 2026. On a monthly basis, the decline reached 1.71% in May and deepened to 2.56% in June. Although still above 100—which means consumers remain in the optimistic zone—the level of confidence continues to decline and in June 2026 returned to the same position as June 2025.
Consumers’ assessment of current economic conditions and the outlook for the next six months also weakened. The Current Economic Conditions Index (IKE) fell from 116.5 in April to 112.2 in May and 109.2 in June 2026. At the same time, the Consumer Expectations Index (IEK) fell from 129.6 to 126.4. This means that the public not only feels the weakening of current economic conditions, but their optimism about future developments is also diminishing.
Pressure on actual conditions is visible across all components of the IKE. The Current Income Index (IPSI) fell 2.76% month-on-month to 119.8 in June 2026. The Job Availability Index (IKLK) also fell 3.05% to 101.8, while the Durable Goods Purchases Index fell 2.22% to 105.9. All are still in the optimistic zone, but their positions are increasingly approaching the 100 threshold, especially perceptions regarding job availability.
Consumer expectations for the next six months also experienced a correction. The Income Expectations Index fell 2.12% month-on-month to 133.6, while the Job Availability Expectations Index weakened 2.89% to 124.4 in June 2026. The most prominent decline was seen in the Business Activity Expectations Index, which reached 121.2, down 2.65% compared to May 2026 and 6.26% compared to June 2025.
The weakening confidence is in line with developments in retail sales. The total Real Sales Index (IPR) fell from 226.9 in April to 223.4 in May and is forecast to fall again to 221.6 in June 2026. Year-on-year, real sales contracted 3.87% in May and are forecast to fall deeper by 4.44% in June. The monthly and annual declines show that the weakening of sales is not only caused by seasonal patterns after Ramadan and Idulfitri.
Contraction occurred in groups of goods related to daily consumption and non-primary needs. Sales of food, beverages, and tobacco are estimated to fall 4.45% year-on-year in June 2026. Sales of motor vehicle fuel fell 7.84%, cultural and recreational goods weakened 8.44%, while clothing contracted 6.44%. The deepest decline occurred in information and communication equipment, reaching 25.49%.
Amid the weakening, sales of spare parts and accessories still grew 10.98% year-on-year in June 2026. Other household equipment is also forecast to grow 1.82%. However, growth in these two groups has not been able to offset the contraction in most other categories.
The decline in consumer confidence followed by contraction in real sales shows that the strength of household consumption as the anchor of the national economy is beginning to weaken. Consumers are indeed still optimistic, but increasingly cautious in spending because their assessment of income, employment, and business activity is starting to decline. If this trend continues, the strength of household consumption to drive economic growth could weaken in the second half of 2026.
Beware of Declining Domestic Capital
Investment is indeed still signalling expansion for the Indonesian economy. Throughout 2024, realisation of Domestic Direct Investment (PMDN) and Foreign Direct Investment (PMA) reached Rp1,714.2 trillion. The value increased to Rp1,931.2 trillion in 2025, or grew 12.66%. This growth was mainly supported by PMDN, which jumped 26.57%, from Rp814.0 trillion to Rp1,030.3 trillion. Conversely, PMA was relatively stagnant at around Rp900.0 trillion.
Entering 2026, investment continued to grow, but the source of growth reversed. Total investment during the first half of 2026 reached Rp1,010.6 trillion, up 7.18% compared to Rp942.9 trillion in the first half of 2025. This time, growth was mainly supported by PMA, which rose 17.36%, from Rp432.5 trillion to Rp507.6 trillion. Meanwhile, PMDN actually fell 1.45%, from Rp510.3 trillion to Rp502.9 trillion.
This change caused PMA to regain a slightly larger share. The contribution of PMA to total investment increased from 45.88% in the first half of 2025 to 50.23% in the first half of 2026. Conversely, the contribution of PMDN fell from 54.12% to 49.77%. So, aggregate investment is indeed still expansive, but the weakening of PMDN needs to be watched because it can reflect