CORE Indonesia Projects Economic Growth Below 5%, Here's Why

Jakarta - Indonesia’s economic growth in the second quarter of 2026 is expected to slow and fall back below the 5% level. Increasing global uncertainty, soaring production costs, and tighter monetary policy are considered the main factors weighing on the national economic pace.

Director of Research for Macroeconomics, Fiscal and Monetary Policy at the Center of Reform on Economics (CORE) Indonesia, Akbar Susamto, projects that Indonesia’s economic growth in the second quarter of 2026 will only be in the range of 4.8% to 4.9%.

“So, according to our calculations at CORE Indonesia, the pace of Indonesia’s economic growth in the second quarter of 2026 will grow between 4.8% and 4.9%,” Akbar said during the CORE Midyear Economic Review event on Wednesday (29/7/2026).

According to Akbar, the slowdown is triggered by a combination of external and domestic pressures. At the global level, geopolitical conflicts that have driven up energy prices are increasing industrial production costs. Meanwhile, domestically, tighter monetary policy and uncertainty in fiscal governance are also limiting the space for economic expansion.

CORE also maintains its projection for Indonesia’s economic growth throughout 2026 at around 4.9% to 5.1%, lower than the government’s target of 5.4%.

“We are not changing our projection. Last year, in our Economic Outlook, we estimated that 2026 economic growth would be in the range of 4.9% to 5.1%,” Akbar stated.

From the external side, CORE highlighted the surge in energy prices due to the geopolitical conflict in the Strait of Hormuz region, Iran. The conflict briefly pushed global crude oil prices to touch US$118 per barrel on 30 April 2026. Throughout this year, the average oil price has remained around US$85 per barrel, thereby increasing production costs, especially for the manufacturing sector.

In terms of the components forming gross domestic product (GDP), household consumption is estimated to grow by 4.7% to 4.9% in the second quarter of 2026, slowing compared to the first quarter of 2026 realisation which reached 5.52%.

Meanwhile, government consumption is projected to grow by 20% to 23%, while Gross Fixed Capital Formation (GFCF) or investment is estimated to increase by 6.8% to 7.5%.

In the external sector, exports of goods and services are projected to grow by 7% to 8%, while imports of goods and services are estimated to increase by 4.8% to 4.9% in the second quarter of 2026.